In today’s New York Law Journal, Kenneth Block and Jeffrey Steiner report on the liability of attorneys, to non-clients, based upon false assurrances. They write:

“As a result of recent litigation in New York1 and elsewhere2 involving claims against attorneys and accountants, we thought it would be helpful to revisit fundamental principles of third party liability as they relate to a lending transaction. Claims of third party liability arise in the context of allegedly false representations and assurances made by attorneys and accountants in opinion letters and financial statements. In the event of a subsequent loan default and loss to the lender, the lender may look to third parties upon whom the lender relied in order to mitigate the loss. The borrower’s attorneys and accountants may then come within the lender’s litigation sights.

The Issue of Privity

The threshold determination a court must make before permitting a party to recover in tort for economic loss resulting from another’s negligent misrepresentation is whether there has been an adequate showing of contractual privity between the parties or a relationship so close as to approach that of privity.3 While the issue of contractual privity between attorney and client is easily defined and rarely disputed, whether a non-client and attorney sustain a relationship approaching privity proves to be more ambiguous. While a borrower’s counsel is clearly not in contractual privity with a lender, when the link between the borrower’s counsel and the lender is sufficiently close to privity, a duty of care is established between the lender and the attorney.4 Should a lender sustain a pecuniary loss resulting from reliance on false assurances set forth in an opinion letter, the lender may have recourse against the borrower’s attorney in the form of a negligent misrepresentation claim.”