Bennett v. Gentile

Madelyn Bennett, Individually and as Successor Trustee of the Pauline A. Bennett Revocable Living Trust v. Thomas A. Gentile, No. 25, September Term, 2023. Opinion by Gould, J. ATTORNEY MALPRACTICE – STRICT PRIVITY RULE The Supreme Court held that the strict privity rule set out in Noble v. Bruce, 349 Md. 730 (1998), is still good law. Applying the doctrine of stare decisis, the Supreme Court held that the strict privity rule applies in legal malpractice cases when a beneficiary under the inter vivos trust sues the attorney who advised a decedent in the estate planning context. ATTORNEY MALPRACTICE - THIRD-PARTY BENEFICIARY The Supreme Court reviewed Noble v. Bruce, 349 Md. 730 (1998), and Ferguson v. Cramer, 349 Md. 760 (1998), and concluded that one’s status as a testamentary beneficiary does not entitle that person to claim third-party beneficiary status for claims against the drafting attorney.

Rather, under Noble, the presumption is that a mere testamentary or trust beneficiary is not a third-party beneficiary. But Noble does not foreclose the possibility that the presumption against third-party beneficiary status cannot be overcome by allegations and proof of sufficient facts showing that the client’s intent to benefit the beneficiary was the direct purpose of the transaction or relationship. Circuit Court for Montgomery County Case No.: 481150V Argued: March 5, 2024 IN THE SUPREME COURT OF MARYLAND No. 25 September Term, 2023 ______________________________________ MADELYN BENNETT, INDIVIDUALLY AND AS SUCCESSOR TRUSTEE OF THE PAULINE A. BENNETT REVOCABLE LIVING TRUST v. THOMAS A. GENTILE ______________________________________ Fader, C.J., Watts, *Hotten, Booth, Biran, Gould, Eaves, JJ. ______________________________________ Opinion by Gould, J. ______________________________________ Filed: August 12, 2024 * Hotten, J., now a Senior Justice, participated in the hearing and conference of this case while an Pursuant to the Maryland Uniform Electronic Legal active member of this Court. After being Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. recalled pursuant to the Maryland Constitution, Article IV, § 3A, she also participated in the 2024.08.12 12:03:58 -04'00' decision and adoption of this opinion.

Gregory Hilton, Clerk In this legal malpractice case by the beneficiary of an inter vivos trust against the drafting attorney, we are mainly asked to abandon or relax the rule—known as the “strict privity rule”—under which “a third party not in privity with an attorney has no cause of action against the attorney for negligence in the absence of fraud or collusion.” Noble v. Bruce, 349 Md. 730, 738 (1998). Alternatively, the beneficiary asks us to hold that she can proceed against the attorney on a third-party beneficiary theory. As explained below, we hold that the strict privity rule under Noble is still good law and that, on the undisputed facts, the beneficiary does not have a claim against the attorney as a third-party beneficiary. I A A trust is “a fiduciary relationship with respect to property, subjecting the person by whom the title is held to equitable duties to deal with the property for the benefit of another person[.]” Klein v. Bryer, 227 Md. 473, 477 (1962).

A trust is created by a “settlor”: The person who contributes property to the trust. MD. CODE ANN., EST. & TRUSTS (“ET”) § 14.5-103(w)(1) (1974, 2022 Repl. Vol.); RESTATEMENT (THIRD) OF TRUSTS § 3 (“RESTATEMENT”) (Am.

L. Inst. 2003, June 2024 Update). The trust property is held by the “trustee” for the benefit of one or more “beneficiaries.” RESTATEMENT § 3. A trust may be created for any legal purpose. Klein, 227 Md. at 476 .

A settlor, trustee, and beneficiary are all required for the creation of a trust. Waesche v. Rizzuto, 224 Md. 573, 583 (1961). The settlor may create a trust either by will or, as here, inter vivos. RESTATEMENT § 3.

Either way, the trust may be created through a “[t]rust instrument,” which is defined as “an instrument executed by the settlor that contains the terms of the trust, including amendments to the trust.” ET § 14.5-103(bb). The phrase “terms of the trust” “means the manifestation of the intent of the settlor regarding the provisions of a trust as expressed in the trust instrument or as may be established by other evidence that would be admissible in a judicial proceeding.” ET § 14.5-103(aa). The terms of the trust can also, if the settlor so chooses, reserve the right to amend the terms or revoke the trust altogether. See Vito v. Grueff, 453 Md. 88, 93-94 (2017); AMY MORRIS HESS ET AL., BOGERT’S THE LAW OF TRUSTS AND TRUSTEES § 1 (2023).

B In 2015, Madelyn Bennett’s1 mother, Pauline Bennett, age 91, retained Respondent Thomas Gentile, Esquire, to prepare her estate planning documents. Mr. Gentile prepared a trust instrument memorializing the terms of the Pauline A. Bennett Revocable Living Trust (“Trust”), which Pauline executed on October 30, 2015 (“2015 Instrument”). Pauline wore three hats under the 2015 Instrument: “Settlor,” “Trustee,” and “Beneficiary.” The 2015 Instrument was broken down into nine sections, each with one or more subsections. In subsection 1.02, Pauline stated that her intention as Settlor was “to transfer certain real and [personal property] into this trust” and that “[t]he Trustee hereby agree[s] to hold any such property, IN TRUST, on the terms set forth in this instrument.” That subsection also specifically identified two properties to be transferred: 11605 Fillmore Drive in Silver Spring (“Fillmore”) and 4715 Wissahican Avenue in Rockville (“Wissahican”).

On the same day she signed the 2015 Instrument, Pauline also signed deeds to transfer Fillmore 1 To assist the reader in keeping track of the parties, we refer to the Bennett family members by their first names. In doing so, we intend no disrespect. 2 and Wissahican to herself, as Trustee under the Trust. Both deeds were duly recorded. This dispute concerns the disposition of Wissahican upon Pauline’s death.

Subsection 2.01 of the 2015 Instrument stated that until her death, Pauline as Settlor “shall utilize” the Trust’s property as Trustee for her benefit, with just one exception: Wissahican could be used solely for the benefit of Pauline’s daughter, Audrey Bennett- Eney. Subsection 3.01 directed the disposition of the Trust’s assets upon Pauline’s death with this introductory clause: “Upon the death of Settlor, the Successor Trustee shall distribute the real property in the trust, and any personal property, and any property and funds later added to the trust corpus, as follows[.]” The subsections that followed instructed the Trustee to distribute: (a) Wissahican and its contents to Audrey; (b) Fillmore to Pauline’s son, Matthew Bennett, and to Madelyn; (c) Fillmore’s contents “equitably” to Audrey, Madelyn, and Matthew; and (d) “any other funds and property of the trust” in equal shares to Audrey, Madelyn, and Matthew. In subsection 7.01 of the 2015 Instrument, Pauline appointed herself to serve as the “Initial Trustee” and Madelyn to serve as “Successor Trustee” upon Pauline’s “death or disability.” C Pauline executed a new trust instrument in May 2017 called the “Revised Pauline A. Bennett Revocable Living Trust” (“2017 Instrument”), also prepared by Mr. Gentile. This instrument contained the same nine sections and their subsections as its predecessor.

Many of these provisions were untouched, including the provisions regarding Wissahican. 3 But the 2017 Instrument also made some significant changes. Subsection 1.02 was changed to acknowledge that Pauline had transferred the property as contemplated in the prior version, and it retained the provision stating that she “agree[s] to hold any such property, IN TRUST, on the terms set forth in this instrument.” Also, by that time, Matthew had died, so the provisions addressing Fillmore and its contents were modified to replace Matthew with Pauline’s grandson, Jonathan. Audrey was added as a Successor Trustee to serve jointly with Madelyn. D In 2019, while temporarily living in a nursing facility, Pauline learned that Audrey had withdrawn money from Pauline’s bank accounts, used Pauline’s credit cards without authorization, and mismanaged Pauline’s money.

In November 2019, Pauline expressed these concerns and others to Mr. Gentile, including her fear that she lacked sufficient funds to pay for home nursing care. She told Mr. Gentile that she needed to sell Wissahican to pay for that care. Recall that under subsection 2.01, as Trustee, Pauline was required to “utilize” Wissahican “for the benefit” of Audrey, so an amendment to the 2017 Instrument would be required to use that property for her benefit, that is, to sell Wissahican and use the proceeds for her own needs. Pauline asked Mr. Gentile to adjust her estate planning documents accordingly and told Mr. Gentile “don’t put anything about [Wissahican] going to Audrey.” Mr. Gentile prepared a new trust instrument called the “Amended Revised Pauline A. Bennett Revocable Living Trust,” which Pauline signed on November 20, 2019 (“2019 Instrument”).

This version contained the same nine sections as the two previous ones, again 4 with most of the provisions unchanged. Subsection 2.01 was amended by removing the clause that required Pauline to use Wissahican for Audrey’s benefit. In addition, subsection 3.01 was changed substantially. The provision in subsection 3.01 calling for Audrey to receive Wissahican upon Pauline’s death was removed.

The subsections disposing of Fillmore and “any other funds and property of the trust not listed above” were changed to remove Audrey and Jonathan as beneficiaries, leaving Madelyn as the sole beneficiary under those clauses. And, under subsection 7.01, Audrey was removed as a Successor Trustee, leaving Madelyn as the sole Successor Trustee. E Pauline died on December 31, 2019, and Madelyn became the Successor Trustee of the Trust. A dispute arose between Madelyn and Audrey over the ownership of Wissahican.

Audrey believed she was entitled to Wissahican due to a deed, signed by Pauline in November 2019, that would have transferred Wissahican to Audrey. After Pauline executed the deed, and due to her concerns about Audrey’s conduct, Pauline instructed Mr. Gentile not to deliver it to Audrey, and the deed was never delivered or recorded. In January 2020, Audrey’s counsel asked Mr. Gentile to record the deed or deliver it to Audrey, but Mr. Gentile refused. Madelyn, as Trustee, filed a four-count complaint in the Circuit Court for Montgomery County on April 3, 2020.

Count One was a claim to quiet the title to Wissahican. Count Two, captioned “Waste,” sought damages from Audrey for allegedly neglecting Wissahican, and allowing it to fall into disrepair to the point that it became rat- infested. Count Three, captioned, “Wrongful Taking,” sought damages because of 5 Audrey’s alleged taking of Pauline’s personal property while Pauline was confined to a nursing home, and Count Four, captioned “Detinue in the Alternative,” sought the return of the personal property as an alternative remedy to damages. Over the ensuing 26 months, many pleadings were filed.

In June 2020, before her quiet title action had been resolved, Madelyn, as Trustee, contracted to sell Wissahican to third-party buyers. The contract purchasers and Mr. Gentile were made parties in one or more pleadings.2 The details of each count in each pleading are not necessary to frame the issues before us. We can group the relevant claims into two categories: (1) claims that turned on whether Wissahican belonged to Madelyn or Audrey upon Pauline’s death; and (2) if Wissahican was determined to belong to Audrey, claims that turned on whether Mr. Gentile was liable to Madelyn, either as a Trustee or in her individual capacity, for allegedly negligently preparing the 2019 Instrument. The circuit court resolved the first question in Audrey’s favor on summary judgment.

Construing the terms of the 2017 Instrument and 2019 Instrument, the court held that the provisions regarding Wissahican in the former were untouched by the latter, which meant that the disposition of Wissahican was governed by the 2017 Instrument—so the property went to Audrey. 2 Audrey was the first to sue Mr. Gentile, alleging primarily that he, along with Madelyn, took advantage of Pauline’s frail state of mind to cut Audrey out of any inheritance. Audrey’s claims against Mr. Gentile were eventually dismissed on summary judgment. 6 Madelyn sought en banc review by the circuit court under Maryland Rule 2-551.3 The en banc panel affirmed the summary judgment entered in Audrey’s favor on that issue.4 Now to the claims that bring this matter before us. Having lost the battle over Wissahican to Audrey, Madelyn pursued her claims against Mr. Gentile. Madelyn argued that Pauline intended that Wissahican or any remaining proceeds from its sale would, along with all other Trust property, go to her upon her mother’s death.

She alleged that but for Mr. Gentile’s negligent drafting of the 2019 Instrument, Wissahican or its sales proceeds would have been distributed to her upon Pauline’s death. She argued that Mr. Gentile admitted under oath that he had made a drafting mistake by failing to specifically provide for the transfer of Wissahican or its sales proceeds to Madelyn in the 2019 Instrument.5 To substantiate her claim of negligent drafting, Madelyn relied on the circuit court’s 3 The parties contested whether the court’s resolution was immediately appealable. That was resolved in Madelyn’s favor, as the en banc panel resolved the matter on the merits. Whether it was, in fact, immediately appealable is not before us, and we note that the appeal that brings this matter before us was from a final judgment, so jurisdiction in this Court is not an issue. 4 The en banc panel also recognized that Madelyn, as Trustee—and under the mistaken belief that Wissahican belonged to her under the 2019 Instrument—contracted to sell Wissahican to third-party buyers.

The en banc panel remanded the case for the circuit court to determine whether that transaction, and the improvements Madelyn made to Wissahican to prepare the property for sale, served Audrey’s best interest as beneficiary. On remand, the court answered that question in the affirmative and determined that Audrey was entitled to the net proceeds of the sale, that is, the sale price less the costs of renovations and cost of sale. 5 We reviewed the testimony on which Madelyn bases this assertion. We do not agree that Mr. Gentile’s testimony constituted an admission of a drafting mistake. And we do not take a position on whether the circuit court correctly interpreted the trust instruments when it concluded that the 2017 Instrument governed the distribution of Wissahican upon Madelyn’s death. 7 determination, confirmed by the en banc panel, that the provisions of the 2017 Instrument regarding Wissahican remained in effect when Pauline signed the 2019 Instrument.

Madelyn sought damages in her capacity as Trustee as well as in her individual capacity. As Trustee, Madelyn sought indemnification from Mr. Gentile for any damages awarded to the third-party buyers and compensatory damages consisting of the attorneys’ fees and litigation costs that she incurred as Trustee in the litigation over title to Wissahican. She also sought compensatory damages equal to the sales price for Wissahican so that, she alleged, she could distribute the same to herself as the beneficiary. In her individual capacity, Madelyn claimed that she was an intended third-party beneficiary of the attorney-client contract between Pauline and Mr. Gentile, that but for Mr. Gentile’s negligence, Wissahican would have been hers, and that she was therefore entitled to compensatory damages.

Each claim was resolved in Mr. Gentile’s favor on summary judgment, in two stages. In the first stage, the circuit court denied Madelyn’s motions for summary judgment on her claims. In the second stage, the circuit court granted Mr. Gentile’s motion for summary judgment as to Madelyn’s claims. In two thorough and well-reasoned opinions (one for the first stage and one for the second), the circuit court held that in Noble v. Bruce, 349 Md. 730 (1998), this Court affirmed the continuing vitality of the strict privity rule in legal malpractice cases and “closed the door altogether to non-client third-party beneficiary claims of legal malpractice in the estate planning context[.]” The court further held that even if Noble left open the possibility for such third-party beneficiary claims, the 8 undisputed facts showed that Pauline engaged Mr. Gentile to draft the 2019 Instrument to serve her own anticipated financial needs and her desire to cut Audrey out of her estate.

The court explained that there was no evidence “that Pauline’s direction [to Mr. Gentile] that Madelyn, her only other living child, receive ‘anything left’ was any more than incidental to removing Audrey as a beneficiary.” Accordingly, the circuit court granted summary judgment in Mr. Gentile’s favor on all claims. F Madelyn noted an appeal to the Appellate Court of Maryland. While this case was pending before the Appellate Court, she petitioned for a writ of certiorari, which this Court granted. Bennett v. Gentile, 486 Md. 228 (2023).

She presents three questions for our review, which we have rephrased as follows: Should the strict privity rule as applied in Noble v. Bruce be overturned in favor of the “balancing of factors” approach articulated in Lucas v. Hamm, 364 P.2d 685 (Cal. 1961)? If the strict privity rule under Noble remains binding precedent in the context of malpractice claims against attorneys who draft estate planning documents or give estate planning advice, does the third-party beneficiary exception to the strict privity rule apply to Madelyn’s claims against Mr. Gentile? Can Madelyn recover litigation costs from Mr. Gentile under the collateral litigation doctrine?6 6 Because we hold that the circuit court correctly granted Mr. Gentile summary judgment on Madelyn’s claims, we do not reach this question, as the collateral litigation fees and costs were components of the compensatory damages she sought in her claims against Mr. Gentile. 9 II A Human interactions and activities involve risks and duties of many kinds. Risks and duties are allocated in two main ways.

The first way is through contracts. Parties to a contract decide which duties they will assume and which risks they will bear. The second way is through tort law. For example, if you drive a car, you put others at risk, so tort law imposes a duty to exercise reasonable care when you drive.

If you breach that duty and injure someone, you bear that loss by paying damages. Under tort law, therefore, you owe duties to people you do not know and have never met. Although the attorney-client relationship is contractual by nature, the essence of a malpractice claim against an attorney sounds in negligence—the “negligent breach of the contractual duty.”7 Flaherty v. Weinberg, 303 Md. 116, 134 (1985). But even though the work of an attorney could harm non-clients, almost 150 years ago in National Savings Bank of District of Columbia v. Ward, 100 U.S. 195 (1879), the Supreme Court of the United States held that without fraud or collusion, privity of contract is required for alleging negligence against an attorney.

In other words, under the strict privity requirement, in the absence of fraud or collusion, non-clients injured by an attorney’s work have no recourse. B 7 The terms of the written agreement between the client and the attorney can be enforced in a breach of contract action. But given that the attorney-client relationship is a special relationship under our caselaw, the privity between the attorney and client also imposes, outside of the contract, a tort duty of care. See, e.g., Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 451 Md. 600, 625 (2017).

That’s why a legal malpractice claim can be alleged under both theories. 10 The strict privity rule has been applied in legal malpractice cases in Maryland since at least 1940. Wlodarek v. Thrift, 178 Md. 453 (1940). In Wlodarek, we held that a non- client could not hold a title attorney liable for a negligent title examination. Id. at 468 .

Three years later, in Kendall v. Rogers, 181 Md. 606 (1943), this Court applied the privity rule where a title attorney for the buyer negligently advised the non-clients about their duty to remedy a certain title defect to the transferred property. Id. at 613-14 . In Flaherty v. Weinberg, this Court considered abandoning the strict privity test in legal malpractice cases in favor of a “balancing of factors” test. Id. at 124.

The balancing of factors approach was formulated by the Supreme Court of California in Biakanja v. Irving, 320 P.2d 16 (Cal. 1958), and later modified for application in the estate planning context in Lucas v. Hamm, 364 P.2d 685 (Cal. 1961). Under this test, courts consider the following factors to determine whether a non-client beneficiary of a will can sue the attorney who drafted the will: (1) the extent to which the transaction was intended to benefit the beneficiary; (2) the foreseeability of harm to the beneficiary; (3) the degree of certainty that the beneficiary was injured; (4) the causal connection between the injury and the attorney’s negligent drafting; and (5) “the policy of preventing future harm.” Lucas, 364 P.2d at 687 . In Flaherty, the home buyers sued the settlement attorney employed by the buyers’ mortgage lender. 303 Md. at 132-33 . At settlement, the attorney allegedly told the buyers that the property being conveyed was the one specified in the sale contract.

Id. Recognizing that the strict privity rule barred the buyers’ claims against the lender’s attorney, this Court noted that other jurisdictions had adopted other approaches, including a “balancing of 11 factors theory.” Id. Despite acceptance in other jurisdictions, this Court observed that this theory “has not met with universal acceptance” and has been criticized for being “too broad” and “so unworkable that it has led to ad hoc determinations and inconsistent results.” Id. (internal quotations omitted).

But although we did not replace the strict privity test with the balancing of factors test, we allowed the non-clients to pursue their claims under a third-party beneficiary theory. We will return to that below. Thirteen years after Flaherty, the strict privity rule was invoked in the estate planning context in Noble v. Bruce, which consolidated two cases from the circuit courts for Somerset and Talbot counties. In the case from Somerset County—Noble v. Bruce— the testamentary beneficiaries sued the attorney who advised the testators on the structure of their estate plan, alleging that he negligently failed to recommend the use of credit or shelter bypass trusts to shelter up to $1.2 million from estate taxes.

Noble, 349 Md. at 734 . The result: more taxes paid by the estate; less money distributed to beneficiaries. Id. In the case from Talbot County—Fauntleroy v. Blizzard—the testamentary beneficiaries sued the law firm that drafted a testator’s will.

Noble, 349 Md. at 737 . The beneficiaries alleged that the firm negligently drafted the will contrary to the testator’s intent, such that all taxes were paid out of the residuary estate—to which the plaintiff beneficiaries were entitled—instead of from the assets that generated the taxes, which were left to someone else. Id. Taking up both cases together, the Court considered whether the strict privity rule should apply in the “will drafting or estate planning context” or should be replaced with the balancing of factors test that the Court had previously rejected in Flaherty.

Id. at 741 , 12 743-44. We observed that, despite a trend to depart from the strict privity rule, “a number of jurisdictions” still maintained it. Id. at 740 . We noted that the strict privity rule in the estate planning context was justified on several public policy grounds.

It protects the attorney’s duty of loyalty and client confidences, prevents conflicts of interests between clients and beneficiaries, and enables the attorney to assess the risk of the engagement. Id. at 741-42, 758 . And the strict privity rule “protects the integrity and solemnity of the will” as well as protecting an attorney from liability disproportionate to the legal fees earned.8 Id. at 756 . We again declined to adopt California’s balancing of factors test, but not without giving it full consideration.

We discussed each factor and remained convinced that the balancing of factors approach was “too broad,” unworkable, and susceptible to “ad hoc determinations and inconsistent results.” Id. at 744 . Thus, we saw “no valid reason to adopt” it. Id. The Court also considered whether the Noble or Fauntleroy beneficiaries could pursue their claims as third-party beneficiaries, a topic we address below.

But we will spoil the ending by adding that, at the end of the analysis, this Court rejected their third-party beneficiary theory, applied the strict privity rule, and affirmed the dismissals of both cases. Id. at 752-53 . 8 Madelyn argues that the public policy considerations justifying the strict privity rule do not apply to her. But we do not apply the rule on a case-by-case basis. 13 C Madelyn urges this Court to overturn Noble and abolish the strict privity requirement for legal malpractice claims involving the negligent drafting of estate documents or negligent estate planning advice. She argues that beneficiaries should not be denied a remedy for injuries proximately caused by the negligence of the attorney who drafted the estate planning documents or rendered negligent advice to the attorney’s now-deceased client.

Madelyn also points to the modern trend of abandoning or relaxing the strict privity rule in this context. She notes that only a few states, other than Maryland, apply the strict privity rule in claims against the drafting attorney.9 She contends that six states and the District of Columbia allow disappointed beneficiaries to sue estate planning attorneys in tort actions despite a lack of privity.10 Six of those