Estate of Spencer v. Gavin, 946 A.2d 1051 (N.J.Super.A.D. 2008)

Brief Summary
A lawyer who had a close and interdependent working relationship with another lawyer had a duty to report that lawyer’s theft of funds belonging to a shared client.

Complete Summary
Lawyers Gavin and Averna, co-defendants, worked in the same building and often shared matters. One such matter was the estate of Spencer (“Spencer”), the plaintiff in this case. Although Gavin, as executor and administrator, was primarily responsible for the estate, he hired Averna to establish a charitable foundation pursuant to Spencer’s will.

Spencer later sued Gavin for embezzling money from the estate and sued Averna for failing to blow the whistle on Gavin. The issue here was whether Averna had a duty to Spencer, and, if so, what he needed to do to fulfill that duty. The trial court awarded Averna summary judgment. The appellate court reversed and remanded.

The appellate court held that Averna could have a duty to Spencer based on three factors. As a threshold matter, the court determined that Averna and Spencer had an attorney-client relationship because, although Averna had claimed to only have done work for the charitable foundation, he had created the foundation at the direction of Spencer’s will. In further support of an attorney-client relationship, the court noted that Averna was paid by the estate, that the estate benefited from his work and that Averna had failed contractually to confine his representation to the foundation.

Second, the court reasoned that “Averna’s close and regular working relationship with Gavin” contributed to Averna’s duty to report Gavin’s misdeeds. Id. at 1068. The court declined to find a de facto partnership between the two because they did not exercise “joint control over a common business[,]” nor was there a “community of interest in the profits or losses[.]” Id. But the attorneys had shared responsibility on 10 to 15 cases, and Gavin appeared to be grooming Averna to take over his business.

Third, the court’s holding was influenced, though not compelled, by the Rules of Professional Conduct. The rules require that a “lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.” Id. at 1069 (quoting RPC 8.3(a)) (emphasis added by court). This rule requires actual knowledge, which may be inferred from circumstantial evidence. The court ultimately held:

[A]n attorney . . . who has a close and interdependent business relationship with another lawyer, and who is performing legal work for a common client at that lawyer’s request, has a duty to report that lawyer if he or she develops actual knowledge that the lawyer has been stealing funds from their common client.

Id. But the court limited its holding to the facts of the case and specifically noted that an attorney who accepts a “routine, arms length referral,” would not automatically be liable for failing to report knowledge of the referring attorney’s misdeeds. Id. at 1070. The court remanded for determination of when, if ever, Averna had actual knowledge of Gavin’s misdeeds.

Regarding the subsequent issue of what the attorney must do once such a duty arises, the court suggested, without definitively holding, that the attorney should report to the Office of Attorney Ethics, and, if appropriate, the client. In the present case, reporting to the client (Spencer’s estate) would have been pointless because it would have entailed reporting to Gavin—the executor and administrator.

Significance of Opinion
This opinion demonstrates that, in addition to potential professional liability, lawyers may be exposed to civil liability for not reporting the misconduct of peers. Nonetheless, the duty imposed in this case appears to be much narrower than the duty imposed by RPC 8.3.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.

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