IN THE SUPREME COURT OF TENNESSEE FILED
AT NASHVILLE
May 6, 1996
Cecil W. Crowson
Appellate Court Clerk
FOR PUBLICATION
CAN DO, INC. PENSION AND PROFIT )
SHARING PLAN AND SUCCESSOR )
PLANS, INDIVIDUALLY AND AS A ) Filed: May 6, 1996
TRUSTEE FOR GEORGE W. )
HOLDER, JR., )
)
Plaintiff-Appellee, ) DAVIDSON CHANCERY
)
Vs. )
)
) HON. IRVIN KILCREASE,
MANIER, HEROD, HOLLABAUGH ) CHANCELLOR
& SMITH, a professional corporation, )
C. KINIAN COSNER, JR., and )
H. ROWAN LEATHERS, III, )
)
Defendants-Appellants. ) No. 01-S-01-9501-CH-00013
For Appellants: For Appellee:
Robert L. Trentham Alfred H. Knight
Mark Tyler Seitz WILLIS & KNIGHT
TRABUE, STURDIVANT & DEWITT Nashville, Tennessee
Nashville, Tennessee
OPINION
COURT OF APPEALS REVERSED;
JUDGMENT OF TRIAL COURT
REINSTATED. ANDERSON,C.J.
This case presents a question of first impression in Tennessee: whether
or not a legal malpractice claim is assignable. We have determined that sound
public policy reasons militate against allowing assignment of legal malpractice
actions. We, therefore, reverse the Court of Appeals and dismiss the complaint.
BACKGROUND
This appeal arises from the trial court's grant of the defendant law firm's
motion to dismiss the complaint for failure to state a claim. Accordingly, the facts
as alleged in the complaint must be taken as true, and are as follows.
George W. Holder, Jr., employed the defendant law firm, Manier, Herod,
Hollabaugh and Smith, to perform certain legal services for him. Later, Holder
individually filed a voluntary bankruptcy petition. Holder owned all the stock in
Can Do, Inc. and was the primary beneficiary of and served as trustee of the Can
Do, Inc. Pension and Profit Sharing Plan.
The bankruptcy trustee, William L. Newport, transferred to the Can Do,
Inc. Pension and Profit Sharing Plan certain assets, including an assignment of
"any cause of action or right to payment the bankruptcy estate may have against
the following . . . C. Kinian Cosner, Jr. and Manier, Herod, Hollabaugh and
Smith."
Following the transfer, Can Do, Inc., filed this complaint asserting that the
law firm's mismanagement of Holder's legal affairs resulted in his bankruptcy.
The law firm moved to dismiss the complaint for failure to state a claim, upon the
grounds that the "claim for legal malpractice, if any, belongs to George W.
Holder and cannot, as a matter of law, be assigned."
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The trial court dismissed the complaint, because "the assignment of a
legal malpractice claim in Tennessee is void and invalid as against public policy
because it constitutes champerty and maintenance and would frustrate, if not
entirely endanger, the attorney -- client relationship."
The Court of Appeals reversed, concluding that a legal malpractice cause
of action survives the death of the assignor and therefore is assignable, and
adopted the minority view that assignment of such claims does not violate public
policy.
We granted the defendants' application to consider this important
question of first impression in this State. For the reasons articulated below, we
have concluded that legal malpractice claims are not assignable.
ASSIGNMENT
Because a legal malpractice claim is a chose in action, we begin our
analysis by reviewing the assignability of choses in action. With few exceptions,
at early common law, a chose in action, which is a right of proceeding in a court
of law to procure payment of a sum of money or to recover a debt, was not
assignable. Black's Law Dictionary, 241(6th ed. 1990); Moran v. Adkerson, 168
Tenn. 372, 79 S.W.2d 44 (1935). The rule of nonassignability was so strictly
construed that it applied even though the original promise was made to the
promisee and his assigns. Hutsell v. Citizens' Nat. Bank, 166 Tenn. 598, 64
S.W.2d 188 (1933).
One reason cited to support the rule of nonassignability was that personal
rights are nontransferable. See Picadilly, Inc. v. Raikos, 582 N.E.2d 338 (Ind.
1991). However, the major purpose of the rule was to prevent champerty and
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maintenance. In Tennessee, "champerty" has been defined as "a bargain with a
plaintiff or defendant in a cause to divide the matter sued for, if they prevail,
whereupon the champertor is to carry on the party's suit at his own expense;"
whereas, "maintenance” has been defined as "an officious intermeddling in a suit
which no way belongs to one by maintaining or assisting either party, with money
or otherwise, to prosecute or defeat it." Spicer v. Jarrett, 61 Tenn. 454, 457
(1873) (citations omitted).
The rule of nonassignability began to gradually erode over time as the
public need to expand the quantity of transferable property in commerce
increased. Under modern statutes and decisions, the assignability of a chose in
action is now the general rule, and nonassignability the exception. 6A C.J.S.,
Assignments §§ 6 and 7 (1975). For example, in Tennessee, any contract-
based chose in action, except those involving matters purely personal in nature,
is assignable. See Tenn. Code Ann. § 47-50-102 (1995); Berger v. Paalzow, 40
Tenn. App. 153, 289 S.W.2d 861 (1956). Tort actions involving injuries to
property are also assignable, East Tenn G. & V.R.R. v. Henderson, 69 Tenn. 1
(1878); Tenn. Code Ann. § 20-5-120 (1994), while tort actions involving personal
injuries and wrongs done to the person, reputation, or feelings of the injured
party continue to be unassignable. See Annotation, Assignability of Claim for
Personal Injury or Death, 40 A.L.R.2d 500 (1975); 6A C.J.S. § 7, Assignments
(1975).
In the absence of a statute, courts determining whether a chose in action
is assignable generally apply the traditional common law test - whether the action
would survive the death of the assignor and pass to the personal representative.
See e.g., Haymes v Halliday, 151 Tenn. 115, 268 S.W. 130 (1925). For
example, in this case, the Court of Appeals applied that traditional survivability
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test and determined that legal malpractice actions survive the death of the
assignor and are assignable.
Although a chose in action must survive to be assignable, not every action
that survives is assignable. For example, claims for personal injuries survive,
pursuant to Tenn. Code Ann. § 20-5-102 (1994), but generally are not
assignable.
In modern times, the common law test of determining the issue of
assignability solely by whether the claim survives the assignor's death seems
outdated and misplaced. Other state courts have experienced difficulty in
applying the survival test and have approached this issue by considering factors
such as public policy considerations, which vary depending upon the particular
type of action under examination. Joos v. Drillock, 338 N.W.2d 736, 738 (Mich.
App. 1983).
Public policy is, in fact, the primary consideration upon which courts from
other jurisdictions have focused in determining the assignability of a legal
malpractice action. For example, the Indiana Supreme Court stated:
Today, it seems anachronistic to resolve the issue of
the assignability of a legal malpractice claim by deciding whether
such a claim would survive the client's death. . . . As is sometimes
the case with the common law, the rule has outlived the reason for
its creation. The customs, beliefs, or needs of a primitive time
establish a rule or a formula. In the course of the centuries the
custom, belief or necessity disappears, but the rule remains.
Where such is the case, this Court has been willing to reexamine
the basis of the rule.
Assignment should be permitted or prohibited based on the
effect it will likely have on modern society, and the legal system in
particular.
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Picadilly, Inc. v. Raikos, 582 N.E.2d at 341 (internal citations and quotations
omitted).
We agree with the Indiana Supreme Court that in resolving the question of
assignability of legal malpractice actions, public policy considerations, rather
than the traditional survivability test, should guide the analysis. Indeed, it is
particularly appropriate for this Court to examine the public policy considerations
that bear upon this question as we have exclusive original jurisdiction over
matters relating to the practice of law. Petition of Burson, 909 S.W.2d 768
(Tenn. 1995). Likewise, we conclude that resolution of the question should not
turn on whether a claim for legal malpractice is classified as a breach of contract
claim or a personal injury claim. Wagener v. McDonald, 509 N.W.2d 188, 190
(Minn. App. 1993). Rather than straining to fit the claim into a category, we think
the better approach is to resolve the question on public policy grounds.
Employing that analysis, a majority of jurisdictions have concluded that
public policy considerations militate against allowing assignment of legal
malpractice actions. Francis M. Dougherty, Annotation, Assignability of Claim for
Legal Malpractice, 40 A.L.R.4th 684 (1985 & Supp. 1995); Picadilly, Inc. v.
Raikos, supra; Bank IV Wichita, Nat'l Ass'n v. Arn, Mullins, Unruh, Kuhn &
Wilson, 827 P.2d 758 (Kan. 1992); Earth Science Laboratories, Inc. v. Adkins &
Wondra, P.C., 523 N.W.2d 254 (Neb. 1994); Chaffee v. Smith, 645 P.2d 966
(Nev. 1982); Schroeder v. Hudgins, 690 P.2d 114 (Ariz. App. 1984); Goodley v.
Wank & Wank, Inc, 133 Cal. Rptr. 83 (Cal. App. 1976); Roberts v. Holland &
Hart, 857 P.2d 492 ( Colo. App. 1993); Washington v. Fireman's Fund Ins. Co.,
459 So.2d 1148 (Fla. App. 1984); Christison v. Jones, 405 N.E.2d 8 (Ill. App.
1980); Coffey v. Jefferson County Bd. of Educ., 756 S.W.2d 155 (Ky. App.
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1988); Joos v. Drillock, supra; Wagener v. McDonald, supra; City of Garland v.
Booth, 895 S.W.2d 766 (Tex. App. 1995); Continental Cas. Co. v. Pullman,
Comley, Bradley & Reeves, 709 F. Supp. 44 (D. Conn. 1989), aff'd 929 F.2d 103
(2nd Cir. 1999); Scarlett v. Barnes, 121 B.R. 578 (W.D. Mo. 1990); contra
Thurston v. Continental Cas. Co., 567 A.2d 922 (Me. 1989); Collins v. Fitzwater,
560 P.2d 1074 (Or. 1977), overruled on other grounds Lancaster v. Royal Ins.
Co., 726 P.2d 371 (Or. 1986); Hedlund Mfg. Co., Inc. v. Weiser, Stapler &
Spivak, 539 A.2d 357 (Pa. 1988); American Hemisphere Marine Agencies, Inc. v.
Kreis, 244 N.Y.S.2d 602 (N.Y. Sup. 1963).
The many public policy reasons underlying these courts' rejection of
assignability of legal malpractice claims was perhaps best summarized by the
California appellate court in Goodley, which was the first to flatly confront the
issue. There, the court focused on the unique character of legal services, the
personal nature of the attorney's duty to the client, and the confidentiality of the
attorney-client relationship.
The assignment of such claims could relegate the legal malpractice
action to the market place and convert it to a commodity to be
exploited and transferred to economic bidders who have never had
a professional relationship with the attorney and to whom the
attorney has never owed a legal duty, and who have never had any
prior connection with the assignor or his rights. The commercial
aspect of assignability of choses in action arising out of legal
malpractice is rife with probabilities that could only debase the legal
profession. The almost certain end result of merchandizing such
causes of action is the lucrative business of factoring malpractice
claims which would encourage unjustified lawsuits against
members of the legal profession, generate an increase in legal
malpractice litigation, promote champerty and force attorneys to
defend themselves against strangers. The endless complications
and litigious intricacies arising out of such commercial activities
would place an undue burden on not only the legal profession but
the already overburdened judicial system, restrict the availability of
competent legal services, embarrass the attorney-client relationship
and imperil the sanctity of the highly confidential and fiduciary
relationship existing between attorney and client.
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Id, 133 Cal. Rptr. at 87.
We generally agree with the Goodley court and conclude that assignment
of legal malpractice actions would both endanger the attorney-client relationship
and commercialize legal malpractice lawsuits. We are particularly concerned
that the relationship between an attorney and client remain a fiduciary
relationship of the very highest character. As a result of that relationship, the
attorney owes the client not only the duty to use skill, prudence and diligence in
the rendition of services, but also the duty to act loyally towards the client and to
maintain client confidences. Tenn. Sup. Ct. R. 8, Canons 4 and 5. These rules
and their enforcement by this Court protect the public, and a violation may result
in disciplinary action, as well as a legal malpractice claim. See also Wagener v.
McDonald, 509 N.W.2d at 191. Allowing free assignment would be a disservice
to the public by compromising both the attorney's duty of loyalty and the duty of
confidentiality, resulting in a weakened attorney-client relationship.
As the Indiana Supreme Court recognized, "[a]n adversary might well
make a favorable settlement offer to a judgment-proof or financially strapped
client in exchange for the assignment of that client's right to bring a malpractice
claim against his attorney. Lawyers involved in such negotiations would quickly
realize that the interests of their clients were incompatible with their own self-
interest." Picadilly, Inc. v. Raikos, 582 N.E.2d at 343; City of Garland v. Booth,
895 S.W.2d at 770. The risk that allowing assignments of claims would impair
an attorney's loyalty would be present therefore, not only in those cases in which
a client assigned a malpractice claim, but in all other cases as well.
Moreover, assignment would compromise the duty of confidentiality.
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Whenever an attorney is sued by a client for legal malpractice, the attorney is
permitted to reveal confidential client information reasonably necessary to
establish a defense. Tenn. Sup. Ct. R. 8, DR 4-101(C)(4). So long as the client
brings the malpractice claim, the client has the power to drop the lawsuit to avoid
the disclosure of embarrassing confidential communications. Id. Once a legal
malpractice claim is assigned, however, the client loses control of the litigation.
The assignee controls the claim and may have little or no concern for the client's
sensitivities. The client could thereby be harmed and such disclosures would
foster disrespect for the attorney-client relationship in general. Picadilly, Inc. v.
Raikos, 582 N.E.2d at 343-44; Wagener v. McDonald, 509 N.W.2d at 192.
Finally, in our view, the commercialization of legal malpractice claims that
would be fostered by allowing assignment is inimical to the legal profession and
the administration of justice. "Unlike any other commercial transaction, the
client-lawyer relationship is structured to function within an adversarial legal
system. In order to operate within this system, the relationship must do more
than bind together a client and a lawyer. It must also work to repel attacks from
legal adversaries. Those who are not privy to the relationship are often
purposefully excluded because they are pursuing interests adverse to the client's
interests." Picadilly, Inc. v. Raikos, 582 N.E.2d at 343-44. Assignment would
undermine the fundamental structure and function of the relationship and create
a risk of collusion that must not be countenanced. City of Garland v. Booth, 895
S.W.2d at 770; Wagener v. McDonald, 509 N.W .2d at 191. Accordingly, we
conclude that considerations of public policy prohibit the assignment of legal
malpractice claims in Tennessee.
CONCLUSION
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Because we have determined that the public policy of this State should
prohibit the assignment of legal malpractice actions, the judgment of the Court of
Appeals is reversed, and the judgment of the trial court dismissing this action is
reinstated. Costs of this appeal are taxed to the plaintiff-appellee, Can Do, Inc.,
for which execution may issue if necessary.
________________________________
RILEY ANDERSON, CHIEF JUSTICE
CONCUR:
Drowota, Reid, Birch, and White, JJ.
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