IN THE COURT OF APPEALS
STATE OF ARIZONA
DIVISION TWO
CAPITOL INDEMNITY CORPORATION, )
an Arizona corpor ation, )
) 2 CA-CV 2001-0114
Plaintiff/Appellant, ) DEPARTMENT A
)
v. ) OPINION
)
ROBERT B. FLEMING and RHONDA )
FLEMING, husband and wife; FLEMING )
& CURTI, P.L. C., )
)
Defendants/Appellees. )
)
APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY
Cause No. C-20004182
Honorable Ted B. Borek, Judge
AFFIRMED
Jennings, Haug & Cunningham, LLP
By William F. Haug and William F. Begley Phoenix
Attorneys for Plaintiff/ Appellant
Chandler, Tullar, Udall & Redhair, LLP
By Charles A. Davis Tucson
Attorneys for Defendants/Appellees
F L Ó R E Z, Judge.
¶1 Capitol Indemnity Corporation, the surety for Anita Heller, a client of attorney
Robert B. Fleming and conservator of an estate, filed an action against Fleming, his spouse, and
Fleming’s law firm (collectively, Fleming) for damages arising out of Fleming’s alleged
negligence in failing to act when Heller illegally used estate funds to make gifts and loans to her
own children. Fleming filed a motion to dismiss the complaint for failure to state a claim upon
which relief could be granted, pursuant to Rule 12(b)(6), Ariz. R. Civ. P., 16 A.R. S., Pt. 1.
After a hearing, the trial court granted Fleming’s motion and this appeal followed. We affirm.
BACKGROUND
¶2 In reviewing the grant of a motion to dismiss a complaint, we assume the facts
alleged in the complaint to be true and give plaintiffs the benefit of all inferences arising from
those facts. Botma v. Huser, 202 Ariz. 14, 39 P.3d 538 (App. 2002). We will uphold a trial
court’s dismissal of a complaint “only if the plaintiff is not entitled to relief ‘under any facts
susceptible of proof under the claims stated.’” Linder v. Brown & Herrick, 189 Ar iz. 398, 402,
943 P.2d 758, 762 (App. 1997), quoting Donnelly Constr. Co. v. Oberg/ Hunt/Gilleland, 139
Ariz. 184, 186, 677 P.2d 1292, 1294 (1984).
¶3 In 1996, the Pima County Superior Court appointed Heller to serve as conservator
of the estate of Pearl E. Bennett, an incapacitated person. The court required Heller to post a
bond in the amount of $345,000. Capitol issued the bond under a suretyship agreement with
Heller. In 1997, Heller retained F leming to advise her on the duties of a conservator and to help
her prepare and file annual accountings. Between her appointment in 1996 and her removal and
criminal indictment in 1998, Heller used $235,561. 03 of estate funds to make unauthorized gifts
and loans to her children. Although Fleming documented these transactions in two annual
2
accountings he filed with the court, he allegedly did not alert Heller or the court about their
impropriety. When Heller’s financial misconduct was discovered, the court r emoved her as
conservator and ordered her to reimburse the estate the full amount she had misappropriated.
Heller was only able to repay $45,561.03 of the usurped funds. As surety, Capitol was then
required to pay the r emaining $190,000 owed.
¶4 Capitol alleged in its complaint that Fleming had owed a duty to it, as Heller’s
surety, as well as to Bennett, the estate’s protected person. Capitol further alleged that Fleming
had breached that duty when he failed to properly inform Heller that her actions were illegal and
to notify the court of Heller’s ongoing criminal misconduct. In its r esponse to the motion to
dismiss, Capitol advanced two theories in support of its claim. First, Capitol contended that it was
entitled to sue Fleming directly under the principles outlined in Fickett v. Superior Court, 27 Ariz.
App. 793, 558 P.2d 988 (1976). Second, and alternatively, Capitol claimed that it was entitled
to be equitably subrogated to Bennett’s right to sue Fleming for malpractice pursuant to A. R.S.
§ 12-1643(A). The trial court found that Capitol had no claim under either theory and gr anted
Fleming’s motion to dismiss.
DISCUSSION
1. Direct Cause of Action
¶5 Capitol first contends it “has a direct cause of action against Fleming for legal
malpractice under the principles announced by this Court in Fickett.” In Fickett, the conser vator
of an incompetent person’s estate sued the attorney for the former guardian, alleging that the
attorney had negligently failed to discover the guardian’s scheme to misappropriate and convert
3
estate assets for his personal benefit. The conservator claimed that the attorney had owed a duty
to the ward despite a lack of privity between the ward and the attor ney.
¶6 In analyzing the conservator’s claim, this court restated the general rule that an
attorney is not liable for legal malpractice to parties other than the attorney’s client absent
collusion or fraud. Fickett; see also Restatement (Third) of the Law Governing Lawyers § 51
cmt. a (2000) (lawyer owes duty of care to nonclient only in “ limited circumstances”). But, in
Fickett, we created an exception to the general r ule, concluding that the attorney had owed a duty
to the ward and was liable for breach of that duty. We reached that conclusion after applying the
following balancing test:
[T]he determination of whether, in a specific case, the attorney will
be held liable to a third person not in privity is a matter of policy
and involves the balancing of various factors, among which are [1]
the extent to which the transaction was intended to affect the
plaintiff, [2] the foreseeability of harm to him, [3] the degree of
certainty that the plaintiff suffered injury, [4] the closeness of the
connection between the defendant’s conduct and the injuries
suffered, [5] the moral blame attached to the defendant’s conduct,
and [6] the policy of preventing future harm.
27 Ariz. App. at 795, 558 P.2d at 990. We concluded that, “ when an attorney undertakes to
represent the guardian of an incompetent [person], he assumes a relationship not only with the
guardian but also with the ward.” Id. In an analogous case, we determined that the attorney
representing the special administrator of a decedent’s estate owed a fiduciary duty to the estate’s
beneficiary. In re Estate of Shano, 177 Ar iz. 550, 869 P.2d 1203 (App. 1993). As a result, we
concluded the beneficiary was entitled to object to the attorney’s repr esentation of the special
administrator based on a conflict of interest. Neither Fickett nor Shano, however, suggests that
Fleming owed a duty to a person other than his client and the protected person, the intended
4
beneficiary of his representation. Indeed, we r ecently clarified that “neither Shano nor Fickett
established or recognized any duty an attorney owes to nonclients who are not, at least
derivatively, intended beneficiaries of the attorney-client relationship. ” Wetherill v. Basham, 197
Ariz. 198, ¶ 36, 3 P.3d 1118, ¶36 (App. 2000).
¶7 In Wetherill, the par ties’ relationship was analogous to that of Fleming and Capitol.
There, this court declined to impose on the attorney who had repr esented the cosettlor of a trust
a duty to the disinherited former beneficiar y. The attorney had no attorney-client relationship with
the former beneficiary but had an attorney-client relationship with and owed a duty to the
cosettlor, whose interests were adverse to the disinherited beneficiary. As noted above, we
distinguished both Fickett and Shano because the disinherited heir in Wetherill was not the
intended beneficiary of the attorney’s services. Similarly, Capitol is not the intended beneficiary
of Fleming’s services; thus, F leming did not owe a duty to Capitol.
¶8 Capitol also relies on Paradigm Insurance Co. v. Langerman Law Offices, P. A.,
200 Ariz. 146, 24 P.3d 593 (2001), as suppor ting its right to directly sue Fleming. Capitol argues
that this case “falls squarely within the long line of precedent discussed in Paradigm and,
consequently, Fleming owe[d] a duty to Capitol” that establishes its “r ight, as a ‘nonclient,’ to
bring a direct action against Fleming for professional negligence.” However, neither Paradigm
nor any of the precedents on which it relied concerned the types of relationships that existed
among the parties here.
¶9 Paradigm Insurance Company had issued a medical malpractice insurance policy
to a physician who was later sued for medical malpractice. Paradigm assigned Langerman Law
Offices to represent the physician in the malpractice action. Langerman allegedly failed to timely
5
discover the existence of a primary policy covering the physician, which compelled Paradigm, the
excess carrier , to act as the physician’s primary carrier and to settle the physician’s claim within
its own policy limits. After Par adigm terminated Langerman’s representation of the physician,
it refused to pay Langerman the attorney’s fees incurred in representing the physician. Langerman
sued Paradigm for its fees, and Paradigm counterclaimed for negligence. The trial court granted
summary judgment in favor of Langerman, holding that the attorneys had owed no duty of care
to the insurer and could not be held liable for negligence that had injured Paradigm but not the
physician.
¶10 Our supreme court held that, “ when an insurer assigns an attorney to repr esent an
insured, the lawyer has a duty to the insurer arising from the understanding that the lawyer’s
services are ordinar ily intended to benefit both insurer and insured. ” Id. at ¶29. In analyzing the
relationships among the parties and determining an attorney’s duty to a nonclient, the supr eme
court relied on the following language from the Restatement of the Law Governing Lawyers
§ 51(3):
“[A] lawyer owes a duty of care . . . to a nonclient when and to the
extent that:
(a) the lawyer knows that a client intends as one of the
primary objectives of the representation that the lawyer’s
services benefit the nonclient;
(b) such a duty would not significantly impair the lawyer’s
performance of obligations to the client; and
(c) the absence of such a duty would make enforcement of
those obligations to the client unlikely.”
Paradigm, 200 Ar iz. 146, ¶23, 24 P.3d 593, ¶ 23.
6
¶11 Here, subsections (a) and (c) do not apply to the relationships among Capitol,
Heller, and Fleming. Applying subsection (a), there is no assertion in the complaint that the
primary objective of Fleming’s representing Heller was to create any benefit to the nonclient,
Capitol. Instead, Heller retained Fleming’s services after contracting with Capitol and did so for
her own benefit—to have him advise her and oversee the annual accountings. Nothing in the
complaint suggests that Heller was motivated by any intent that Fleming’s representation should
extend to or benefit the surety. And even if Heller retained F leming with that motive, there is no
evidence Fleming knew she intended that result. Thus, the first criterion is not satisfied. See
Restatement § 51(3)(a).
¶12 As to subsection (c), it is doubtful that the absence of a duty on Fleming’s part to
protect Capitol would have made enforcement of Fleming’s obligations to Heller any less likely.
See Restatement § 51(3)(c). Subsection (b) is more difficult to assess because it is unclear, based
on this limited record, how imposing a duty of care on Fleming to protect Capitol’s interests could
have impaired Fleming’s ability to fulfill his obligations to Heller. Even if it did not, however,
the existence of this element alone is insufficient. See Restatement § 51(3)(b). Thus, Capitol
failed to satisfy the test on which the supreme court relied in Paradigm.
¶13 Paradigm, then, does not support imposing a duty on Fleming in favor of Capitol.
The relationships among the parties in Paradigm differed fundamentally from the relationships
among the parties here. Capitol did not assign Fleming to represent Heller, as did the insurer in
Paradigm. In fact, there is no statement in the complaint that any relationship existed between
Capitol and Fleming. Nor is there any evidence of an understanding that Fleming’s legal services
7
had been intended to benefit both Heller and Capitol, an intent from which a duty could have
arisen. See Paradigm.
¶14 We have not found, and neither party has cited, any Arizona case holding that the
attorney for a conservator owes a fiduciary duty to the conservator’s surety. The cases on which
Capitol relies do not support its contention that it has a direct cause of action against Fleming
under the circumstances here. Additionally, we agr ee with Fleming that Restatement § 51(4),
which addresses the duty an attorney for a fiduciary may owe in certain circumstances to third
parties, did not impose a duty on Fleming for the benefit of Capitol. Therefore, the tr ial court did
not err in dismissing Capitol’s complaint pursuant to Rule 12(b)(6). Ariz. R. Civ. P.
2. Equitable Subrogation
¶15 Capitol argues in the alternative that the doctrine of equitable subrogation, codified
in § 12-1643(A), entitles it to be subrogated to the rights Bennett held to sue Fleming for
malpractice. Capitol asserts that, as surety for Heller , it “ has the right to exercise all rights of the
creditor once a judgment rendered against the principal has been paid.” Section 12-1643(A)
provides:
When a person who is surety on an undertaking is compelled
to pay a judgment or part thereof . . . such judgment shall not be
discharged by such payment but . . . shall be considered as assigned
to the surety together with all rights of the creditor thereunder to the
extent of the payment made by the surety, and interest thereon.
Here, the principal is Heller, the creditor is Bennett, and the surety is Capitol. Accordingly,
under § 12-1643(A), Capitol may be entitled to assignment of the order requiring Heller to
reimburse the estate to the extent of the payment it made to the estate on Heller’s behalf.
However, that Capitol is entitled to be assigned Bennett’s right to collect from Heller does not
8
mean that Capitol is also entitled to be subrogated to Bennett’s right to sue Fleming directly for
legal malpractice.
¶16 Moreover, Capitol’s contention that it is entitled to equitable subrogation of
Bennett’s claim against Fleming has another impediment. Although we recognize that assignment
and subrogation are not identical legal principles, 1 they are sufficiently similar for us to conclude
that, in Arizona, legal malpractice claims are not subject to subrogation, just as they are not
subject to assignment. Botma (affirming dismissal of legal malpractice claim packaged with bad
faith claim against insurance carrier because Arizona pr ohibits assignment of legal malpractice
claims); Kiley v. Jennings, Strouss & Salmon, 187 Ar iz. 136, 140, 927 P.2d 796, 800 (App. 1996)
(“[A] cause of action for legal malpractice cannot be assigned.”).
¶17 In reaching that conclusion, we have found instructive, as did the tr ial court,
Fireman’s Fund Insurance Co. v. McDonald, Hecht & Solberg, 36 Cal. Rptr . 2d 424 (Ct. App.
1994). There, insurers settled a lawsuit brought by a group of homeowners against their insureds,
developers of the plaintiffs’ residences, for allegedly misrepresenting numerous facts in selling the
residences. The developers sued their attorneys, alleging they had caused the misrepresentations
to be made. When the insur ers joined the lawsuit as plaintiffs under a theory of subrogation, the
attorneys successfully demurred on the ground that California law prohibits assignment of legal
malpractice actions and, thus, precluded subrogation of the legal malpractice action. The
1
Although statute section headings are not law, A.R. S. § 1-212, they can help to resolve
ambiguities. Florez v. Sargeant, 185 Ar iz. 521, 917 P.2d 250 (1996). The heading of A.R. S.
§ 12-1643(A) denotes that the section deals with subrogation while the text itself speaks of
assignment. We find no significant distinction between subrogation and assignment here.
9
California Court of Appeal affirmed, citing the following public policy reasons for prohibiting the
assignment of legal malpractice claims:
“Assignability would encourage commercialization of claims, and
would force attorneys to defend themselves against persons to whom
no duty was ever owed. Moreover, the legal profession is debased
by such commercialization, because it could (1) encourage
unjustified lawsuits; (2) generate increased malpractice lawsuits,
burdening the profession, the court system and (to the extent
malpractice premiums would inevitably rise and be passed to the
consumers) the public; and (3) promote champerty. Assignability
could conceivably reduce the public’s access to legal services, since
the ever present threat of assignment by irresponsible clients
(seeking quick financial gain) could cause lawyers to evaluate more
selectively the desirability of representing a par ticular client. ”
36 Cal. Rptr. 2d at 427, quoting Kracht v. Perrin, Gartland & Doyle, 268 Cal. Rptr . 637, 640
(Ct. App. 1990). Similar public policy considerations underlie Arizona’s rule prohibiting
assignment of a legal malpractice claim. See Botma; cf. State Farm Fire & Cas. Co. v. Knapp,
107 Ariz. 184, 185, 484 P. 2d 180, 181 (1971) (declining to lift the lid “‘on a [P]andora’s box
crammed with both practical and legal problems’” by allowing assignment of personal injury and
medical payments claims), quoting Travelers Indem. Co. v. Chumbley, 394 S. W.2d 418, 425 (Mo.
Ct. App. 1965); Lingel v. Olbin, 198 Ar iz. 249, 8 P.3d 1163 (App. 2000) (claim for wrongful
death not assignable); Lo Piano v. Hunter, 173 Ar iz. 172, 840 P.2d 1037 (App. 1992) (explor ing
public policy rationale for barring assignment of personal injury claims).
¶18 In Fireman’s Fund, the California Court of Appeal fur ther explained that, even
though subrogation and assignment have some differences, “‘each oper ates to transfer from one
person to another a cause of action against a third, and the reasons of policy which make certain
causes of action nonassignable would seem to operate as forcefully against the transfer of such
10
causes of action by subrogation. ’” 36 Cal. Rptr. 2d at 427, quoting Fifield Manor v. Finston, 354
P.2d 1073, 1077 (Cal. 1960); see also Knapp, 107 Ar iz. at 185, 484 P.2d at 181 (“[S]ubrogation
amounts to an assignment.” ). We agree that the public policies that prohibit assignment of a legal
malpractice claim in Arizona also prohibit equitable subrogation of a legal malpractice claim. For
the same reasons as did the court in Fireman’s Fund, we decline to gr ant Capitol a right to be
subrogated to Bennett’s legal malpractice claim against Fleming. See Kiley. Thus, the trial court
correctly refused to permit Capitol to proceed against Fleming under the doctrine of equitable
subrogation.
CONCLUSION
¶19 Having failed to establish the existence of a legal relationship and a concomitant
duty owed it by Fleming, Capitol has no claim against Fleming and his firm. See Linder. Thus,
we affirm the trial court’s granting of Fleming’s motion to dismiss the complaint.
______________________________________
M. JAN FLÓREZ, Judge
CONCURRING:
________________________________________
J. WILLIAM BRAMMER, JR., Presiding Judge
________________________________________
JOSEPH W. HOWARD, Judge
11