Legal malpractice claims are harrowing for any lawyer, but understanding their scope is a critical step to avoiding them. This is particularly true when serving as counsel to closely-held companies. Relationships between lawyers and closely-held companies can be intimate ones in which lawyers interact with a few "constituents" (e.g., shareholders or owners) whose interests generally align with the company's. In advising these clients, the distinction between the company and its constituents can get lost if a lawyer is not careful. A distinction nevertheless exists and, for purposes of malpractice law, it's a significant one.

An attorney-client relationship (or "actual privity") is usually required to bring a legal malpractice claim. But liability doesn't always end there. Others can sue for malpractice by showing near privity. "Near privity" exists when a lawyer is aware her services are being used for a specific purpose, the plaintiff relies upon those services, and the attorney is aware of the plaintiff's reliance. Scopia Windmill LP v. Olshan Frome Wolosky, 2017 N.Y. Slip Op. 32031(U), at *5-6 (N.Y. Sup. Ct. Sep. 27, 2017).

Under New York law, however, even near privity may not mark the outer boundary of malpractice liability. "[A]bsent a showing of actual or near-privity," a plaintiff may maintain a malpractice claim where there is "fraud, collusion, malicious acts or other special circumstances." Ginsburg Dev. Companies v. Carbone, 85 A.D.3d 1110, 1112 (1st Dep't 2011) (emphasis added). A review of case law from the past three decades reveals that "other special circumstances" are commonly found where the distinction between a company and its constituents becomes blurred. Case law also reveals that the difference between "near privity" and "special circumstances" is ill-defined.