On this date in 1995, the Supreme Court decided Petrillo v. Bachenberg, 139 N.J. 472 (1995). In the first sentence of his majority opinion, Justice Pollock framed the issue as “whether under the circumstances of this case the attorney for the seller of real estate owes a duty to a potential buyer.” By a 5-1 vote, the Court affirmed a ruling of the Appellate Division that had reversed the trial court’s dismissal of the plaintiff buyer’s negligent misrepresentation case at the close of her case. Justice Stein filed a concurring opinion, while Justice Garibaldi dissented.
Bruce Herrigel was an attorney who represented Rohrer Construction, the owner of a piece of undeveloped property in Hunterdon County. Rohrer had a contract to sell the land, in connection with which Rohrer retained an engineering firm to perform percolation tests that would reveal, among other things, the stability of the soil for a septic system. The engineers provided two sets of test results. The first set showed that only one out of 22 tests was successful, while the second set contained only one successful test out of eight.
That contract for sale failed. Rohrer then listed the property for sale with a real estate broker, a principal of which was William G. Bachenberg, Jr. Bachenberg asked Herrigel for information about the property, and Herrigel, saying that “he had some perc results,” admittedly provided Bachenberg with two pages (“the composite report”), one from each of the engineering reports. One page came from the first engineering report, and showed one successful test and five unsuccessful tests. The other page, drawn from the second engineering report, showed one successful and one unsuccessful test. “Read together, the two pages appear to describe a single series of seven tests [though, in fact, the six tests on the first page and the two tests on the second page totaled eight tests, not seven], two of which were successful. In fact, the property had passed only two of thirty percolation tests.”
Eventually, Bachenberg and a partner bought the property themselves. One month later, plaintiff Lisa Petrillo expressed interest in the property. Bachenberg gave her a sales packet, which included the composite report that Herrigel had put together and provided to Bachenberg. Herrigel then represented Bachenberg in negotiating a contract of sale with Petrillo’s attorney. There was no evidence that Herrigel disclosed to Petrillo or her counsel that the composite report was not a complete listing of the perc test results.
The contract allowed Petrillo to conduct her own perc tests, and to rescind the contract if those tests were not satisfactory. All six perc tests that were done for Petrillo failed. Accordingly, she declared the contract void and refused to proceed even after Bachenberg hired the same engineering firm that did the original set of perc tests to design a septic system that would satisfy the municipality. When Bachenberg would not return Petrillo’s down payment, she sued Bachenberg, his partner, and Herrigel. Petrillo sought return of the down payment and reimbursement for the engineering fees that she incurred in having her own perc tests done.
Some claims, including Petrillo’s negligent misrepresentation claim, were dismissed at the close of Petrillo’s case at trial. Others went to the jury, which ruled against Petrillo on those claims. The Appellate Division reversed the dismissal that had been entered at the close of Petrillo’s case. Only the propriety of that court’s decision on her negligent misrepresentation claim against Herrigel, however, came before the Supreme Court.
Though the Supreme Court had not previously addressed the potential liability of attorneys to non-client third parties, Justice Pollock cited a number of decisions of the Appellate Division and courts in other jurisdictions that had done so and had found that attorneys could be liable to foreseeable non-clients. Such a result was also consistent with Rosenblum v. Adler, 93 N.J. 324 (1983), which had so ruled as to accountants, relying on the Restatement (Second) of Torts, section 552. Though the Legislature had thereafter limited accountants’ liability, section 552 remained part of New Jersey law.
The majority ruled that “when he delivered the [composite] report to Bachenberg, Herrigel knew, or should have known, that Bachenberg might deliver it to a prospective purchaser, such as Petrillo. Herrigel did nothing to restrict a prospective purchaser’s foreseeable use of the report. In neither the report, a covering letter, nor a disclaimer did Herrigel even hint that the report was anything but complete and accurate.” And, by representing Bachenberg in the sale to Petrillo, Herrigel supported the inference that the purpose of the composite report was to induce a buyer to purchase the land, and that Herrigel knew that Bachenberg intended to use the composite report for that purpose.
Finally, since Herrigel not only prepared the composite report for the prior, failed transaction, but also represented Bachenberg in the Petrillo deal, Herrgiel was not so remote that he could not have foreseen harm to Petrillo. A jury might or might not find for Petrillo, but the claim should have gone to the jury.
In dissent, Justice Garibaldi worried that the majority’s decision would lead to “defensive lawyering” and make legal services more expensive and less accessible. The majority, and Justice Stein in his concurrence, did not agree. Justice Pollock wrote that the majority’s decision did not change the law, but merely stated that though lawyers may have no duty to act, when they do act, “like other people, they should act carefully.” The “uncommon factual basis” of this case, in Justice Stein’s view, ensured that the likelihood of a significant impact on the liability of lawyers to third parties would be “minimal indeed.”
The majority appears to have been correct. There has been no avalanche of successful third party claims. But the decision remains a landmark, and a warning to lawyers.