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While most professional liability suits are brought by a client, upset clients are not the only ones professionals should be wary of. Texas also permits non-clients to assert certain claims against professionals, too. The most common are claims for fraud and negligent misrepresentation. Texas courts have limited these claims, but it is wise for any professional to familiarize him or herself with these types of claims and take some precautionary steps to protect against them.

What are these claims?

While similar to malpractice claims, these claims are not equivalent to malpractice claims. They are not based on the breach of a duty owed by a professional to his or her client. Instead, they are based on an independent duty of a professional to not supply false information for the guidance of non-clients. In 1999's McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, the Texas Supreme Court held that the duty of a professional to not supply false information for the guidance of non-clients arises when (1) the attorney is aware of the non-client and intends that the non-client rely on the representation; and (2) the non-client justifiably relies on the attorney's representation of a material fact.

The distinction between a fraudulent misrepresentation and a negligent misrepresentation is a matter of degree. A fraudulent misrepresentation requires knowledge that a representation is false or a showing that the representation was made recklessly with no reasonable ground to believe it was true or where the speaker should have known otherwise, whereas a negligent misrepresentation only requires that a representation that was false be made. While fraud is the more serious allegation, negligent representation can be the more distressing claim as the burden to establish a negligent misrepresentation claim is lower and the potential for injury to a professional's reputation is still considerable.

Who can bring them?

These claims are generally limited to non-clients who the professional is aware of. This could include other parties to litigation or a transaction as well as other non-clients who receive information directly or indirectly from a professional. This latter group could, for example, include investors/buyers or potential investors/buyers who receive a copy of a professional's opinion letter on a pertinent issue if the professional is aware that the opinion letter will be shared with such individuals or entities.

Under what circumstances?

These claims are subject to certain restrictions to keep them limited in scope. In addition to the restrictions on who can bring these claims, both fraud and negligent misrepresentation claims require a showing of actual and justifiable reliance under Texas law. Applying this requirement, Texas courts have held that there can be no justifiable reliance on representations in certain settings such as adversarial settings. For example, in addressing claims asserted against attorneys, Texas courts have routinely held that a non-client may not justifiably rely on an opposing attorney's statements made in litigation, settlement negotiations, or "arms-length" transactions. Texas courts have also routinely held that an attorney cannot be held liable for alleged misrepresentations when preparing legal documents based on information provided by the client, which then end up in the hands of non-clients.

Instead, non-clients generally must show that the professional "invited" reliance by the non-client. This invitation does not need to be expressly made; it may be inferred and is often based on the lack of any disclaimer, warning, or qualifier accompanying the "guidance" or representation. For example, courts have allowed an attorney to be held liable to a non-client when the attorney issues an opinion letter or some type of evaluation on a pertinent subject that is shared with non-clients. Similarly, accountants or financial professionals could potentially be held liable to a non-client for "representations" in financial statements.

How can professionals protect themselves against such claims?

First and foremost, consider the audience for any representation. A professional should always contemplate to whom any representation is being directed as well as who could rely on it. If a professional is preparing an opinion letter, who is the letter directed to? Is it intended for the client's eyes only or will it likely be shared with non-clients? Is it limited to a specific issue based on unique facts applicable to only the client or a more general issue that could apply to others? Knowing the answers to these questions will help determine the proper precautions to take.

Based on the audience, consider implementing some or all of the following:

1. Specifically state to whom the representation is directed and who should rely on it.
2. Expressly state the scope and purpose of the professional's retention.
3. Include a disclaimer as to the scope and accuracy of any factual investigation conducted. If no independent factual investigation was conducted, and the professional is relying solely on facts provided by a client, say so.
4. Expressly state any assumptions being made.
5. If certain information that the professional requested or would generally consider was not provided for the professional's consideration, expressly identify the omitted information.
6. If the professional is not following a general practice or standard that such a professional could be assumed to be following, expressly state that such a general practice or standard is not being followed.

These practice tips may help protect a professional against a fraud or negligent misrepresentation claim by negating or making it more difficult for a non-client to show justifiable reliance on a representation. A few such precautionary measures on the front end could end up saving a professional from having to defend these claims and his or her reputation.

Susan Egeland is a partner at Drinker Biddle & Reath, LLP in its Dallas office. She is an experienced litigation and trial lawyer representing clients across numerous industries involving a wide variety of claims including professional liability claims.  

Matt Sapp is an associate at Drinker Biddle & Reath, LLP in its Dallas office. He represents clients in various types of litigation in state, federal, and appellate courts including professional liability claims.