On certification to the Superior Court, Appellate Division, whose opinion is reported at 263 N.J. Super. 472 (1993).
The opinion of the Court was delivered by Pollock, J. Chief Justice Wilentz and Justices Handler, O'Hern, and Stein join in this opinion. Justice Stein has also filed a separate Concurring opinion. Justice Garibaldi has filed a separate Dissenting opinion. Justice Coleman did not participate.
The opinion of the court was delivered by: Pollock
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
LISA PETRILLO V. WILLIAM G. BACHENBERG, JR. ET AL. (A-8-94)
Argued September 26, 1994 -- Decided March 29, 1995
POLLOCK, J. writing for a majority of the Court.
The Supreme Court granted certification in this matter to address whether the attorney for the seller of real estate owes a duty to a potential buyer.
In 1987, Rohrer Construction (Rohrer) owned a tract of undeveloped land in Union Township, Hunterdon County. Rohrer hired Heritage Consulting Engineers (Heritage) to perform percolation tests on the property. Percolation tests reveal, among other things, the suitability of soil for a septic system. For municipal approval of a septic system, Union Township requires two successful percolation tests. In September and October of 1987, Heritage provided Rohrer and Bruce Herrigel, Rohrer's attorney, with copies of two reports: the first report revealed that of twenty-two tests, only one had been successful; the second report revealed that out of eight tests, only one had been successful.
Rohrer listed the property with a local real estate broker, Bachenberg & Bachenberg, Inc. In October 1988, William G. Bachenberg, Jr. (Bachenberg) asked Herrigel for information concerning that listing. Herrigel sent Bachenberg a two-page document consisting of one page from each of the two Heritage reports. Read together, these two pages appeared to describe a single series of seven tests, two of which were successful. This report, which had been prepared by Herrigel and subsequently called the "composite report," did not explain that the property had in fact only passed two of thirty percolation tests. This composite report became part of Bachenberg's sales packet.
Rohrer was unable to sell the property and as a result of its financial difficulties, Bachenberg and a partner, John Matthews, were able to purchase the property at a sheriff's sale in December 1988. In June 1989, Lisa Petrillo sought to purchase the property. Herrigel was hired to represent Bachenberg in that sale. During contract negotiations, Herrigel did not inform Petrillo or her attorney of the complete Heritage reports. However, as part of the contract, Petrillo was given time to conduct independent percolation tests as well as the ability to rescind the contract if those tests were unsatisfactory.
In August 1989, Petrillo hired an engineering firm, Canger & Cassera (Canger), to conduct soil tests and site planning. Based on the composite report, Canger recommended that preliminary site-plan work be conducted simultaneously with the soil testing by the subcontractor. The six soil tests that were conducted yielded unsuccessful results, leading the subcontractor to conclude that the site was inadequate for a septic system. Thereafter, Canger ceased work on the site plan and, on August 22, 1989, Petrillo notified Bachenberg that the contract was void.
In response, Bachenberg contracted with Heritage to design a satisfactory septic system. Heritage designed a system that was approved by the Hunterdon County Board of Health. Petrillo refused to accept the design. She sued Bachenberg, Matthews and Herrigel for return of her $16,000 down payment and for the costs of her engineering fees. In her complaint, Petrillo alleged, among other things, negligent misrepresentation by Herrigel in that his failure to provide the complete Heritage reports violated a duty he owed to her and that the breach of that duty caused her to incur engineering expenses she would not have incurred had she been apprised of all the facts.
At the close of Petrillo's case, the trial Judge dismissed the claim against Herrigel, concluding that Herrigel did not owe a duty to Petrillo. The Appellate Division reversed, finding that an attorney for a seller has a duty not to provide misleading information to potential buyers who the attorney knows, or should know, will rely on that information.
HELD: Under the circumstances of this case, the seller's attorney had a duty not to misrepresent negligently the contents of a material document on which he knew or should have known a potential buyer might rely to his or her financial detriment.
1. Whether an attorney owes a duty to a non-client, third party depends on balancing the attorney's duty to represent his or her client's vigorously with the duty not to provide misleading information on which third parties foreseeably will rely. A lawyer's duty is limited to situations in which the lawyer intended or should have foreseen that the third party would rely on the lawyer's work. Thus, an attorney may owe a duty of care to a non-client when the attorney knows, or should know that the client will rely on the attorney's representations and when the client is not too remote from the attorney to be entitled to protection. The imposition of such a duty comports with general principles of tort law. (pp. 8-18)
2. The objective purpose of documents prepared by a lawyer, and the extent to which others foreseeably may rely on them, determines the scope of a lawyer's duty. In this case, Herrigel extracted information from existing percolation-test reports, created the composite report, and delivered that report to a real estate broker. There was nothing in or accompanying Herrigel's report that would inform the reader that the report was not complete or accurate. When he delivered that report to Bachenberg, Herrigel knew, or should have known, that Bachenberg might give it to a prospective purchaser like Petrillo. Herrigel's continuing involvement permits two inferences: that the objective purpose of the report was to induce a prospective purchaser to buy the property; and that he knew that Bachenberg intended to use the report for that purpose. (pp. 18-20)
3. By providing his composite report to Bachenberg and subsequently representing Bachenberg in the Petrillo sale, Herrigel assumed a duty to Petrillo to provide reliable information in respect of the percolation tests. Because Herrigel did nothing to limit the objective purpose of the composite report, he should have foreseen that Petrillo, as a prospective purchaser, would rely on the facts set forth in the report in deciding whether to sign the contract of sale and to proceed with engineering and site-plan work. Given Petrillo's concern about percolation, Herrigel's duty includes the obligation to provide information concerning both successful and unsuccessful percolation tests. (pp. 20-22)
4. The Court disagrees with the Dissent that Petrillo is too remote from Herrigel and that recognizing a duty extending from Herrigel to Petrillo will affect the type, price and accessibility of legal services. (pp. 22-24)
Judgment of the Appellate Division is AFFIRMED.
JUSTICE STEIN, Concurring, writes separately to emphasize his view that the Court's decision effects no material change in the liability of lawyers or other professionals to third parties.
JUSTICE GARIBALDI, Dissenting, is of the view that the majority imposes on an attorney a duty of care to a non-client that is broader than that imposed under the proposed Restatement of the Law Governing Lawyers § 73, under the Restatement (Second) of Torts § 552, and under New Jersey case law. Such an extension will lead to defensive lawyering, and will make legal services more cumbersome, more costly, and less accessible to clients. According to Justice Garibaldi, Herrigel owed no duty to Petrillo; the composite report was not a legal opinion; Herrigel did not provide legal services to Petrillo; and Petrillo admitted that she did not rely on Herrigel's report.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, O'HERN, and STEIN join in JUSTICE POLLOCK'S opinion. JUSTICE STEIN has also filed a separate Concurring opinion. JUSTICE GARIBALDI has filed a separate Dissenting opinion. JUSTICE COLEMAN did not participate.
The issue is whether under the circumstances of this case the attorney for the seller of real estate owes a duty to a potential buyer. Plaintiff, Lisa Petrillo, alleges that because of the negligence of defendant Bruce Herrigel, an attorney, she received a misleading copy of a percolation-test report that induced her to sign a contract to purchase property. At the close of plaintiff's case, the Law Division concluded that Herrigel did not owe a duty to plaintiff to provide a complete and accurate report. The Appellate Division reversed, 263 N.J. Super. 472 (1993). It determined that an attorney for a seller has a duty not to provide misleading information to potential buyers who the attorney knows, or should know, will rely on the information. We granted Herrigel's petition for certification, 134 N.J. 566 (1993), to determine whether he owed such a duty to plaintiff. We now affirm the judgment of the Appellate Division.
In 1987, Rohrer Construction (Rohrer) owned a 1.3-acre tract of undeveloped land in Union Township, Hunterdon County. Herrigel represented Rohrer in the sale of the property. Rohrer hired Heritage Consulting Engineers (Heritage) to perform percolation tests concerning a contract of sale to Land Resources Corporation(Land Resources). Percolation tests reveal, among other things, the suitability of soil for a septic system. Union Township requires two successful percolation tests for municipal approval of a septic system.
In September and October 1987, Heritage provided Rohrer and Herrigel with copies of reports describing two series of percolation tests. The first report, dated September 24, 1987, revealed that of twenty-two tests, only one had been successful. A November 3, 1987, report showed that of eight tests conducted in October, one had been successful.
Rohrer's contract with Land Resources failed. Subsequently, Rohrer listed the property with a local real estate broker, Bachenberg & Bachenberg, Inc. In October 1988, William G. Bachenberg, Jr. (Bachenberg) of Bachenberg & Bachenberg, Inc. asked Herrigel for information concerning the listing. Herrigel told Bachenberg that "he had some perc results," and sent him a two-page document consisting of one page from each of the two Heritage reports. The first page was page one from the September 24, 1987, report; it reflected one successful test and five unsuccessful tests. The second page was culled from the November 3, 1987, report; it listed one successful and one unsuccessful test. Read together, the two pages appear to describe a single series of seven tests, two of which were successful. In fact, the property had passed only two of thirty percolation tests. The document, subsequently described as the "composite report," became part of Bachenberg's sales packet.
Herrigel admits that he possessed both Heritage reports and that he delivered the composite report to Bachenberg. Although Herrigel does not deny that he prepared the composite report, his petition for certification states: "However, there was no evidence given during plaintiff's proofs that Mr. Herrigel had in fact prepared the erroneous two-page report."
Rohrer, which apparently was experiencing financial problems, could not sell the property. In December 1988, Bachenberg and a partner, John Matthews, bought the property at a sheriff's sale for$70,000. In January 1989, Bachenberg discussed with Rohrer the 1987 engineering reports. Rohrer declined to provide those reports to Bachenberg because Bachenberg would not reimburse Rohrer for Heritage's engineering fees.
Bachenberg listed the property for sale at $160,000. In February 1989, Petrillo expressed an interest in purchasing the property to build and operate a child day-care facility. That month, at their first meeting, Bachenberg gave Petrillo a sales packet, which included the composite report.
In June 1989, Petrillo agreed to pay Bachenberg his asking price. Herrigel represented Bachenberg in negotiating the terms of the contract with Petrillo's attorney. Nothing in the record indicates that Herrigel informed Petrillo's attorney of the test results that had been omitted from the composite report. At the insistence of Petrillo's attorney, the contract provided Petrillo with forty-five days to conduct independent soil and water tests, including percolation tests. The contract provided further that Petrillo could rescind if the percolation tests were not satisfactory to her.
In August 1989, Petrillo hired an engineering firm, Canger & Cassera, to conduct soil tests and site planning. Based on the composite report, Canger & Cassera recommended that they start site-planning work simultaneously with the conduct of percolation tests by a sub-contractor, PMK, Ferris & Perricone (PMK). PMK conducted six percolation tests, all of which failed. Consequently, PMK concluded that the site was inadequate for a septic system. Canger & Cassera stopped working on the preliminary site plan. On August 22, 1989, Petrillo notified Bachenberg that the contract was null and void.
In response, Bachenberg contracted with Heritage to design a septic system that would satisfy the municipality. Heritage designed the system, which the Hunterdon County Board of Health approved. Petrillo, however, refused to accept the design, and requested permission to conduct additional percolation tests. Bachenberg denied her request. During the course of their negotiations, Herrigel sent Petrillo the complete copies of the September 24 and November 3 Heritage reports.
The parties could not settle their differences. Bachenberg refused to return Petrillo's $16,000 down payment, claiming that she had breached the contract. Petrillo sued Bachenberg, Matthews, and Herrigel for the return of the down payment and for the costs of her engineering fees. Her complaint alleged claims sounding in breach of contract, fraud, concealment, negligent misrepresentation, and conspiracy.
In the complaint, Petrillo alleged, among other things, that Herrigel's failure to provide the complete Heritage reports violated a duty that he owed to her. She claimed further that the violation had caused her to incur engineering expenses that she would not have incurred if she had known all the facts. Specifically, she contended that if she had known that the property had passed only two of thirty percolation tests, she would not have signed the contract or hired Canger & Cassera and PMK.
At the close of plaintiff's case, the trial court dismissed Petrillo's complaint against Herrigel. The court concluded that Petrillo had not alleged facts sufficient to support a duty extending from Herrigel to her. It stated:
There are no facts dealing with any responsibility or duty that Mr. Herrigel had. He had no knowledge of what Mr. Bachenberg gave, if anything, to Miss Petrillo, and on Miss Petrillo's cross-examination she essentially said she never intended to rely on anything Mr. Herrigel provided or failed to provide and never hired Mr. Herrigel. Mr. Herrigel never gave direct information to her. Mr. Herrigel never refused to answer any questions put to him.
Taking the mechanical function that I must apply, I find that there is no evidence that I have before me dealing with any responsibility or any breach of any duty committed by Mr. Herrigel in this transaction.
The court also dismissed Petrillo's claims against Bachenberg and Matthews for concealment. On the remaining claims, the jury determined in answer to specific interrogatories that Petrillo, based on PMK's unsuccessful percolation-test results, could have terminated her contract with Bachenberg. The jury also found that she had not terminated the contract. Finally, the jury determined that Petrillo had breached the contract by not seeking site-plan ...