Ethics Rules Shape Duty to Beneficiaries When Conflict Arises in Wrongful Death Suit

By Joan C. Rogers  

The New Mexico Supreme Court Feb. 28 revived a lawsuit against an attorney who allegedly committed malpractice and fraud in dealing with conflicts of interest between his client--the personal representative in a wrongful death action--and a statutory beneficiary (Spencer v. Barber, N.M., No. 33,133, 2/28/13, rev'g 27 Law. Man. Prof. Conduct 468).

Justice Edward L. Chávez used the court's opinion to address the role of professional conduct rules in malpractice actions. The court concluded that they are relevant in ascertaining the scope of the lawyer's duty and may be cited by plaintiffs to establish the appropriate standard of conduct.

In the case under review, the court decided that once the interests of the personal representative and the statutory beneficiary became adverse, the attorney could not escape his duty to the beneficiary merely by notifying him that he was not protecting the beneficiary's interests.

“[T]he Rules of Professional Conduct … become relevant when ascertaining the scope of the duty owed by the attorney to the personal representative and how a breach of that duty may have harmed the statutory beneficiary.”
New Mexico Supreme Court

The court found that disputed factual issues exist, precluding summary judgment for the lawyer, about whether the lawyer satisfied his obligation to safeguard the beneficiary's possible share of the wrongful death proceeds, and whether the lawyer made sufficient disclosures to the beneficiary in reaching a settlement with the beneficiary in the wrongful death suit.

Conflicts, Family and Legal

Ellen Sam was appointed to act as the personal representative for the estates of her daughter, Hermanda Spencer, and her granddaughter, Lydia Burnett, who died in a car accident. Sam hired Paul Barber of Barber & Borg to file a wrongful death claim on behalf of the estates.

Hermanda Spencer died intestate with no surviving children. Under New Mexico statutes, her parents, Sam and Herbert Spencer, were her statutory beneficiaries and ordinarily would share equally in any recovery for her wrongful death. Because Hermanda briefly survived her daughter Lydia, Hermanda's share of any recovery for Lydia's wrongful death also would go in equal shares to Sam and Spencer.

Barber's task in the wrongful death action became complicated in two key ways. First, Sam contended that Spencer had abandoned Hermanda and therefore lost any right to share in a recovery for her wrongful death. Second, Sam allegedly was partly to blame for the accident in that she was driving and stopped the car at night in a traffic lane on an interstate with the lights off.

When some of the defendants in the wrongful death suit made offers to settle, Barber went to see Spencer, told him that a lawsuit had been filed, and negotiated a settlement in which Sam received $20,000 plus forgiveness of unpaid child support obligations.

Barber subsequently accepted the defendants' $900,000 settlement offer. Sam received the bulk of the proceeds.

Lawyer Sued for Malpractice, Fraud

After consulting another lawyer, Spencer tried to repudiate his settlement. When Sam sued to enforce it, Spencer filed suit against Barber and his firm, alleging that Barber breached his duty to Spencer as a beneficiary of the wrongful death action by withholding critical information from him and improperly inducing him to sign the settlement agreement.

Barber said he had told Spencer that the case was likely to settle for a “very large amount,” but Spencer claimed that Barber kept mum about the expected amount and failed to reveal that two of the defendants had offered to settle for about $900,000.

The trial court concluded that Barber violated no duty to Spencer and granted summary judgment to the lawyer and his firm. The supreme court reinstated Spencer's action, concluding that Barber and his firm are not entitled to summary judgment on either Spencer's malpractice claim or his fraud claim.

The backdrop for the court's ruling was Leyba v. Whitley, 907 P.2d 172 (N.M. 1995), which held that nonclients may bring malpractice claims when the lawyer's work was intended to benefit the nonclient. Leyba determined that an intent to benefit nonclient beneficiaries can be inferred in wrongful death cases, and therefore the intended beneficiaries can sue the personal representative's lawyer for malpractice.

Leyba recognized an exception for cases in which the parties were in an adversarial position, where no such intent could be inferred. According to Leyba, this “adversarial exception” does not negate the lawyer's duty of reasonable care to the intended beneficiary; instead, a breach of that duty occurs when the lawyer continues to represent conflicting interests. Leyba suggested that any such conflict should be resolved by notifying the nonclient not to rely on the lawyer.

Relevance of Ethics Rules

Reviewing Leyba, the court made clear that a statutory beneficiary under the state's Wrongful Death Act, N.M. Stat. §§41-2-1 et seq., is always an intended beneficiary of the agreement between the personal representative and the attorney for the personal representative.

Therefore, it said, the statutory beneficiary may sue the personal representative's attorney when the attorney harms the statutory beneficiary by failing to exercise reasonable skill and care during the attorney's representation of the personal representative.

In such a suit, the court stated, “the Rules of Professional Conduct … become relevant when ascertaining the scope of the duty owed by the attorney to the personal representative and how a breach of that duty may have harmed the statutory beneficiary.”

Although the rules cannot be used as a basis for civil liability, plaintiffs may cite the rules to establish the appropriate standard of conduct for attorneys to follow, the court declared.

As support, it cited the Scope section of the rules, as well as several federal and state court decisions and secondary authority.

Conflict Between Statutory Beneficiary, Client

In this case, the court found, a conflict of interest arose when Sam, as the personal representative, sought to challenge Spencer's entitlement to a full share of the wrongful death proceeds in favor of Sam's receiving a larger share. This position conflicted with Sam's fiduciary duty as personal representative, the court said.

A lawyer in this situation may not simply distribute the proceeds to one party or the other, the court stated, citing New Mexico Rule of Professional Conduct 16-115(E), which provides that a lawyer who possesses disputed funds must keep them separate until the dispute is resolved. The commentary to that rule indicates that the lawyer must not unilaterally assume to arbitrate the dispute, but may file an action to have a court resolve it, the court noted.

When faced with this conflict, Chávez said, Barber could not negate his duty to Spencer simply by stating that he represented Sam and not Spencer.

On the other hand, the court rejected the idea that Barber's only option was to withdraw from representing Sam. Rather, it explained, once the conflict of interest developed, Barber could have declined to represent Sam in her claim that Spencer was not entitled to his statutory share of the wrongful death proceeds, or he could have deferred the legal battle until after the wrongful death case was concluded.

Settlement With Beneficiary

Instead of choosing either of these courses, the court observed, Barber negotiated an agreement between Sam as the fiduciary and Spencer as the beneficiary.

This approach was not prohibited, the court said, provided that the agreement was on fair terms and Spencer gave informed consent, as required by the Restatement (Second) of Contracts §173 (1981), which deals with contracts between fiduciaries and beneficiaries, and comment a to that section, which instructs that the beneficiary must be put on an equal footing with full understanding of his legal rights and all relevant facts.

The court also found relevant Rule 16-403, which addresses a lawyer's dealings with unrepresented persons. Under that rule and its comment, the court concluded, “an attorney may meet with a beneficiary, explain whom he represents, and negotiate a settlement, provided that the attorney and the personal representative first put the beneficiary on an 'equal footing' as required by Restatement Section 173 comment a.”

The disclosure needed in this situation is similar to what lawyers must provide in order to obtain a client's informed consent under ethics rules on conflicts of interest, the court explained. Chávez said that at a minimum a disclosure typically should include:

• the fact that the person is a beneficiary in a wrongful death action, and the identities of the parties to the suit;

• the amount of any settlement or verdict reached, or any settlement offers under consideration;

• the percentage of the settlement or verdict to which the beneficiary is entitled under the statute;

• the basic position of the adverse party; and

• the fact that the attorney now represents the adverse party against the beneficiary and is not looking out for the beneficiary's interests.


In this case, the court found, genuine factual disputes exist as to whether Barber satisfied his obligation to safeguard Spencer's possible share of the settlement and whether the lawyer's disclosures to Spencer were adequate.

Other Rulings

The court also ruled that Sam's potential liability for the car accident created a potential conflict of interest.

Under Rule 16-107, it explained, a conflict of interest may exist if representation of one or more clients will be materially limited by the lawyer's responsibilities to a third person.

Summary judgment in favor of Barber was inappropriate, the court decided, because there are disputed factual questions whether the lawyer had a conflict of interest in his representation of Sam and, if so, whether he handled the conflict with due care and skill without harming the statutory beneficiaries.

The court also decided that Spencer's claims against Barber for fraud, misrepresentation, and collusion may go forward. The adversarial exception in Leyba does not bar independent tort claims such as fraud where the plaintiff can prevail regardless of whether he was an intended beneficiary of the lawyer's work, it explained.

Dolph Barnhouse and Kelli J. Keegan of Luebben, Johnson & Barnhouse in Albuquerque, N.M., represented Spencer. M. Eliza Stewart and Jacqueline A. Olexy of Madison & Mroz, Albuquerque, represented Barber and his firm.

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