Potential liability to third parties for legal opinions

Providing a "legal opinion" may seem like a core function for lawyers that is anything but controversial. In many cases, the legal opinion is rendered for a single specific client who has no intention of disclosing the opinion outside the confines of the attorney-client relationship. Although that circumstance may indeed by uncontroversial, questions arise when a legal opinion is used for broader purposes and is disseminated to others.

In a wide variety of contexts, a client may seek a legal opinion to serve a particular purpose apart from simply receiving legal advice. One common example occurs in connection with corporate governance, where a board of directors may seek an opinion to demonstrate that certain conduct taken by the board was justified. Typically, the attorney-client relationship extends only to the board that retained the attorney to provide an opinion. However, to meet other goals of the client, that opinion may be shared intentionally with many others, including shareholders who may contend that they relied upon the opinion to their detriment.

The potential risks for attorneys in such scenarios can be complex. The shareholders or other third parties may attempt to sue the lawyer directly even in the absence of an attorney-client relationship. Depending on the substance of the report, the board also may sue the lawyer to the extent the report caused others to bring claims against the board.

Many states have adopted Rule 2.3 of the ABA Model Rules of Professional Conduct to govern situations in which lawyers prepare evaluations for use by those other than the client. While that rule provides some guidance, California has chosen not to adopt Rule 2.3. Thus, even more so in California, it is helpful to consider the risks when rendering legal opinions that will be provided to third parties.

Consider the Nature and Scope of the Requested Opinion

Attorneys' obligations generally run directly -- and exclusively -- to their clients and not to the public at large. This is different from an accountant, for example, who may prepare reports for public consumption and may owe duties to the investing public. As a result, lawyers who are preparing materials for review or consumption by others separate from their own clients may face a tension between the duties owed to the client (including the duty of candor in explaining legal risks to clients) and the purpose of the evaluation (which may be, indirectly, to help support the client's position or goals).

For example, corporations often retain attorneys to perform internal investigations that serve the primary purpose of advising the corporation, but may also involve reporting the investigation results to shareholders or to regulatory agencies. As a result, the Comments to Model Rule 2.3 caution that "careful analysis of the situation is required." In addition, Model Rule 2.3 requires the "informed consent" of the client before any report is shared and may require that the attorney advise the client regarding the potential risks of sharing an evaluation with a third party.

Having these discussions before commencing the representation can help ensure that both the lawyer and client understand the purpose of the representation.

Client Confidentiality

Rule 1.6 of the California Rules of Civil Procedure, along with California and Business and Professions Code section 6068, contain strict restrictions regarding the disclosure of confidential information to third parties. One exception, however, is where the client provides "informed consent" to disclosure as defined by the California Rules of Civil Procedure.

Accordingly, when retained to provide a legal opinion that will be shared with others, lawyers can consider whether the opinion will contain information that may otherwise be considered confidential to the client. If so, it may be necessary to discuss with the client to confirm that such information should be disclosed.

Other Risks

Although preparing a report that may be relied on by others typically does not create an attorney-client relationship with those third parties, it may or may not create a legal duty owed by the lawyer to those known third parties. Even unknown third-parties that rely on a public report and claim that they did so to their detriment may still be able to sue the attorney who prepared the report.

The potential risks in such scenarios are typically fact specific and controlled by applicable case law. However, courts may consider whether it was reasonable and foreseeable for the claimant to believe they could rely on the report and for the attorney to believe that those third-parties could rely on their work. To decrease the risk of liability and limit potential exposure, opining lawyers often choose to include limitations and disclaimers on the face of the opinion to make it clear who the intended audience is, who may rely on the opinion, and/or that the lawyer is relying on facts provided by the client without independent investigation (if applicable). The lawyer can also include disclaimers regarding the scope of law and other limitations.

There is also a risk that a client could bring a claim against their lawyer alleging that releasing the report publicly was not in the client's best interest, or that the report created additional risk for the client (for example, by being incomplete or incorrect). Thus, defining the scope of the representation -- and the potential risks to the client -- early on can be critical.

Providing legal opinions that will be presented to others can also create the risk of a potential conflict of interest. Comment [4] to Model Rule 2.3 acknowledges that risk, observing that "if the lawyer is acting as advocate in defending the client against charges of fraud, it would normally be incompatible with that responsibility for the lawyer to perform an evaluation for others concerning the same or a related transaction."

While there is nothing inherently improper in providing a legal opinion with the knowledge that the opinion will be shared with third parties, a review of the relevant rules and case law will help lawyers meet the goals of the representation while limiting risk. 