Rhode Island: Former Attorney Found Guilty for Legal Malpractice for Breach of Duty of Care

In Credit Union Cent. Falls v. Groff, 966 A.2d 1262 (R.I., 2009) the attorney misappropriated funds in connection with two real estate closings. The court addressed the issue of whether the former attorney owed a duty of care to the credit union. The court held that since it was uncontested that the former attorney misappropriated loan proceeds, the credit union was entitled to recover on its claim of attorney malpractice.
Mr. Groff was acting as closing attorney for real estate transactions involving Credit Union Central Falls customers. The credit union provided Mr. Groff with a check in the attorney’s name to discharge two existing mortgages to ensure the priority of the credit union mortgage. Mr. Groff did not pay off the previous mortgages but made monthly payments on the prior loans to conceal their continued existence and instead used the money for personal ends.
Rhode Island ethical codes permit multiple representation if there is full disclosure, the clients consent in writing, and the attorney reasonably believes there will be no harm to either client. Although Mr. Groff was representing the credit union’s customers for these real estate transactions, Mr. Groff had a deep financial interest in maintaining a good relationship with the credit union and much of the closing attorney’s duties were directly intended to benefit the credit union. In McIntosh County Bank v. Dorsey &Whitney, LLP, 745 N.W.2d 538, 547 (Minn. 2008), the court reaffirmed its rule of law “that in order for a third party to proceed in a legal malpractice action, the party must be a direct and intended beneficiary of the attorney’s services.” It also went on to state that “the benefit to the third party must be ‘the end and aim of the transaction’ before the beneficiary may be called direct.” In this case, Mr. Groff was required to ensure that the credit union’s mortgage had priority and the borrowers authorized Mr. Groff to satisfy the credit union’s loan requirements. Therefore, the court found that the credit union, if not a client, was at the very least an intended beneficiary of the contractual obligations between Mr. Groff and the borrowers, and as such, the attorney owed the credit union a duty of care.
The court found in the credit union’s favor and that they are entitled to recover on its claim of attorney malpractice for Mr. Groff’s flagrant breach of his duty to use “ordinary care and skill” in the exercise of his profession. The court found summary judgment in favor of Credit Union Central Falls.