COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 59939 HARRY S. ARPADI, ET AL. : : PLAINTIFFS-APPELLANTS : JOURNAL ENTRY : v. : AND : FIRST MSP CORP., ET AL. : OPINION : DEFENDANTS-APPELLEES : DATE OF ANNOUNCEMENT OF DECISION: APRIL 23, 1992 CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court, No. 094816. JUDGMENT: AFFIRMED. DATE OF JOURNALIZATION: APPEARANCES: For Plaintiffs-Appellants Steven S. Kaufman, Esq. Harry S. Arpadi, et al.: Frank R. Desantis, Esq. David P. Lodwick, Esq. Jack G. Day, of counsel Kaufman, Cumberland & Zamore 1404 E. 9th Street, No. 300 Cleveland, OH 44114 For Defendant-Appellee Daniel W. Hammer, Esq. Hahn, Loeser & Parks: James D. Robenalt, Esq. Thompson, Hine & Flory 1100 National City Bank Building Cleveland, OH 44114 -2- MATIA, C.J.: Plaintiffs-appellants-limited partners, Harry S. Arpadi, Harold L. Gordon, Leon Sutton, Gerald Greenberg, Barbara Dee Scherer, Henry A. Schechter, Dennis Flyer, Donald Miller, Edward H. Hemmingsen, Philip Teller, Izak Teller, Maria Teller, Max Schechter and Sam Brownstein, all being members of a limited partnership entitled Lakeside Ten Apartments, L.P., appeal from the judgment of the Cuyahoga County Court of Common Pleas which granted summary judgment on behalf of defendants-appellees, Hahn, Loeser and Parks and Wilton S. Sogg. The instant appeal concerns the issue of an attorney's immunity from liability to third persons with regard to legal malpractice. I. THE FACTS A. THE FORMATION OF THE LIMITED PARTNERSHIP On or about June 28, 1984, a document captioned "Private Placement Memorandum" was provided to each of the appellants- limited partners. This document was an inducement to the appellants-limited partners to purchase a limited partnership interest in a limited partnership identified as the Lakeside Ten Apartments, L.P. The limited partnership, in conjunction with the general partner, First MSP Corp., was formed to purchase and convert an apartment building (the Lakeside Ten Apartments) into luxury condominium units which would then be sold for an anticipated profit. Purchase price of the apartment building was established at 7.5 million dollars with 2.1 million dollars down and a "wrap around" mortgage in the amount of 5.4 million dollars. -3- B. THE MORTGAGE PROVISION AS CONTAINED IN THE PRIVATE PLACEMENT MEMORANDUM Also contained in the Private Placement Memorandum was an innovative formula for the renovation of the apartment building vis-a-vis the incremental payment of any existing mortgages. The document, with regard to the existing mortgages, provided that: "The Property is presently encumbered by a wraparound mortgage, deed dated March 6, 1980, in the amount of $5,400,000 given by the Sellers to Thomas J. Dillon (the 'Mortgage') which includes and incorporates a first mortgage dated January 13, 1969 made by Associated Construction Company, Inc. to Akron Savings & Loan Co. in the original principal amount of $3,100,000 and a second mortgage dated March 5, 1980 made by Thomas J. Dillon and Patricia J. Dillon to BancOhio in the original principal amount of $700,000. The Mortgage, which currently bears interest at a rate of 10.5% and which matures and becomes due and payable on September 30, 1994, contains (i) an exculpatory clause which provides that the mortgagee's sole rights in the event of foreclosure shall be to proceed against the Subject Premises encumbered thereby and without the mortgagee having any right to seek judgment for any deficiency against the mortgagor or its partners, and (ii) the right of the mortgagor to prepay such mortgage in whole or in part without penalty. The Mortgage, Underlying First Mortgage and Underlying Second Mortgage (the 'Mortgages') will be modified to provide a release clause formula releasing individual apartment units and allocable shares of common areas from the liens of the Mortgages in the event of the conversion of the Subject Premises to condominium ownership upon payment of certain scheduled amounts in reduction of the principal balances of the Mortgages for each apartment so released, with an initial release of apartments selected by the Partnership having that collective value pursuant to the schedule." (Emphasis added.) -4- C. APPELLEE-HAHN, LOESER AND PARKS AND APPELLEE-WILTON S. SOGG RETAINED TO REPRESENT LIMITED-PARTNERSHIP On June 30, 1984, the appellants-limited partners executed a document captioned "Lakeside Ten Apartments, L.P. Agreement of Limited Partnership." This document created the limited partnership between Lakeside Ten Apartments, L.P. and First M.S.P. Corp., the general partner. In addition, the law firm of Hahn, Loeser and Parks and Wilton S. Sogg, Esq. (individually) were retained by the general partner and the limited partnership to assist in the purchase and closing of the apartment building. D. PURCHASE AGREEMENT FOR APARTMENT DID NOT CONTAIN MORTGAGE RELEASE PROVISIONS On July 5, 1984, the purchase agreement was executed for the acquisition of the apartment building. The purchase agreement, however, failed to include the mortgage release provisions as originally provided for in the Private Placement Memorandum. The failure to include the mortgage release provisions in the purchase agreement in turn prevented the conversion of the individual apartments into condominiums and ultimately resulted in bankruptcy and the sale of the apartment building at a price which was substantially less than the original purchase price. E. APPELLANTS FILE COMPLAINT IN CUYAHOGA COUNTY COURT OF COMMON PLEAS On July 19, 1985, the appellants-limited partners filed a complaint in the Cuyahoga County Court of Common Pleas. The complaint encompassed nine separate causes of action and also named eight separate defendants. The present appeal, however, is -5- solely concerned with the appellant's claims of legal malpractice as allegedly committed by appellee-Hahn, Loeser and Parks and appellee-Wilton S. Sogg. This claim of malpractice involved the failure of the purchase agreement to include the mortgage release provisions as originally found in the Private Placement Memorandum. All other causes of action, including counterclaims, were voluntarily dismissed without prejudice against the 1 remaining defendants. F. APPELLEES' JOINT MOTION FOR SUMMARY JUDGMENT On December 31, 1987, the appellees filed a joint motion for summary judgment with regard to the appellants-limited partners' claim of legal malpractice. On March 23, 1989, the trial court granted the appellees' joint motion for summary judgment. G. THE TIMELY APPEAL Thereafter, the appellants-limited partners brought the instant appeal from the judgment of the trial court which found that the appellees were immune from the appellants-limited partners' claim of legal malpractice. Having a common basis in law and fact, this court shall simultaneously consider the appellants-limited partners' first and second assignments of error. 1 The appellants-limited partners' complaint, as filed on July 19, 1985, also named the following parties as defendants: First MSP Corp.; Blue Jay Companies, Inc.; Richard Jankell, Esq.; Joseph C. Barreiro, Blue Jay Forestry and Land Use Corp.; and Lakeside Ten Apartments, L.P. The additional claims as contained in the complaint involved limited partner derivative claims, breach of fiduciary duty, wanton and willful misconduct, bad faith, fraud, conversion, accounting and rescission. -6- II. THE APPELLANTS' ASSIGNMENT OF ERRORS The appellants-limited partners' initial assignment of error is that: "THE TRIAL COURT ERRED BY GRANTING SUMMARY JUDGMENT IN FAVOR OF APPELLEES, BECAUSE THE ATTORNEYS FOR A LIMITED PARTNERSHIP OWE A DUTY TO THE LIMITED PARTNERS." The appellants-limited partners' second assignment of error is that: "THE TRIAL COURT ERRED BY GRANTING SUMMARY JUDGMENT IN FAVOR OF APPELLEES, CONTRARY TO THE RULE OF LIABILITY SET FORTH IN HADDON VIEW INVESTMENT CO. v. COOPERS & LYBRAND (1982), 70 OHIO ST. 2D 154." A. ISSUE RAISED: TRIAL COURT ERRED IN GRANTING APPELLEES' MOTION FOR SUMMARY JUDGMENT SINCE APPELLEES NOT IMMUNE FROM CLAIM OF LEGAL MALPRACTICE The appellants-limited partners, through their two assignments of error, argue that the trial court erred as a result of granting the appellees' joint motion for summary judgment with regard to the issue of immunity from legal malpractice. Specifically, the appellants-limited partners argue that the trial court applied the wrong standard which is to be applied to legal malpractice and third persons. In addition, the appellants-limited partners argue that privity between the limited partnership and the appellants-limited partners prevented the appellees from raising the defense of immunity from liability for legal malpractice and thus the trial court erred in granting the appellees' motion for summary judgment. T h e appellants-limited partners' appeal is not well taken. -7- B. CIV. R. 56(C) AND MOTION FOR SUMMARY JUDGMENT Civ. R. 56(C), which governs the trial court's disposition of a motion for summary judgment, provides in pertinent part that: "*** Summary judgment shall be rendered forthwith if the pleading, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence in the pending case, and written stipulations of fact, if any, timely filed in the action, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. No evidence or stipulation may be considered except as stated in this rule. A summary judgment shall not be rendered unless it appears from such evidence or stipulation and only therefrom, that reasonable minds can come to but one conclusion and that conclusion is adverse to the party against whom the motion for summary judgment is made, such party being entitled to have the evidence or stipulation construed most strongly in his favor. ***" A trial court must grant a motion for summary judgment when there exists no genuine issues of material fact for the trier of fact and the moving party is entitled to judgment as a matter of law. Norris v. Ohio Std. Oil Co. (1982), 70 Ohio St. 2d 1; Temple v. Wean United, Inc. (1977), 50 Ohio St. 2d 317. In addition, the party opposing the motion for summary judgment may not rest upon the denials or allegations of his pleadings but must affirmatively demonstrate the existence of genuine issues of material fact in order to defeat a motion for summary judgment. Mitseff v. Wheeler (1988), 38 Ohio St. 3d 112. C. ELEMENTS OF A CLAIM OF LEGAL MALPRACTICE -8- In order to establish a claim of legal malpractice, a plaintiff is required to establish the following: 1) an attorney-client relationship which gives rise to a duty; 2) sufficient facts to demonstrate that the attorney's alleged misconduct caused the plaintiff's injury; 3) the attorney breached his duty to provide competent legal service; and 4) the damages sustained by the plaintiff were the proximate result of the alleged attorney misconduct. Krahn v. Kinney (1989), 43 Ohio St. 3d 103; McIntire v. Paul Scott Co., L.P.A. (March 27, 1986), Franklin App. No. 85AP-762, unreported. It should be noted that the appellees' motion for summary judgment was solely concerned with the question of an attorney-client relationship which gave rise to a duty to the appellants-limited partners. D. STANDARD OF REVIEW TO BE APPLIED TO A CLAIM OF LEGAL PRACTICE WHEN THIRD PERSONS INVOLVED In the case sub judice, the appellants-limited partners argue that the appellees' legal representation, which resulted in the failure of the apartment building purchase agreement to include the mortgage release provisions as originally found in the Private Placement Memorandum, constituted legal malpractice. The appellants-limited partners argue that their claim of legal malpractice was not barred by the doctrine that an attorney is ordinarily immune from liability to third persons vis-a-vis the -9- holding of Haddon View Investment Co. v. Coopers & Lybrand (1982), 70 Ohio St. 2d 154, which established that: "An accountant may be held liable by a third party for professional negligence when that third party is a member of a limited class whose reliance on the accountant's representation is specifically foreseen." Id., syllabus. The appellants-limited partners would have this court hold that an attorney may be held liable by a third party for professional negligence when that third party is a member of a limited class whose reliance on the attorney's representation is specifically foreseen. Although the holding of Haddon is intellectually appealing, the majority opinion of the Supreme Court of Ohio as found in Scholler v. Scholler (1984), 10 Ohio St. 3d 98, controls and guides this court in the disposition of the present appeal. The application of Scholler to the present appeal is mandated by the principle that the "[D]ecisions of a court of last resort are to be regarded as law and should be followed by inferior courts, whatever the view of the latter may be as to their correctness, until they have been reversed or overruled...." Krause v. State (1972), 31 Ohio St. 2d 132, 148 (concurring opinion, per Corrigan, J.); Battig v. Forhey (1982), 7 Ohio App. 3d 72. E. STANDARD OF REVIEW FOR ISSUE OF PRIVITY The Supreme Court of Ohio, in Scholler, examined the issue of an attorney's liability to a third person with regard to legal malpractice and held that: -10- "An attorney is immune from liablity to third persons arising from his performance as an attorney in good faith on behalf of, and with the knowledge of his client, unless such third person is in privity with the client or the attorney acts maliciously." (Emphasis added.) Scholler v. Scholler, supra, paragraph one of the syllabus. Thus, pursuant to the application of Scholler, it is necessary for this court to determine whether the appellants, as limited partners, were in privity with the limited partnership which in fact did have an attorney-client relationship with the appellees. The Supreme Court of Ohio, in Scholler, further provided guidance with regard to the issue of privity between a third person and the original client which retained and received legal representation. In Scholler, the Supreme Court of Ohio defined privity as a relationship wherein the client and a third person share a mutual or successive right of property or other interest. In addition, the court in Scholler stated that it is necessary to examine the interest that the original attorney-client relationship was intended to protect in comparison to the interest of the third person who is alleging legal malpractice. Elam v. Hyatt Legal Services, et al. (1989), 44 Ohio St. 3d 175; Simon v. Zipperstein (1987), 32 Ohio St. 3d 74; Border City S. & L. Assn. v. Moan (1984), 15 Ohio St. 3d 65; Noth v. Wynn (1988), 59 Ohio App. 3d 65; DiPaolo v. DeVictor (1988), 51 Ohio App. 3d 166; Petrey v. Simon (1984), 19 Ohio App. 3d 285. -11- F. NO PRIVITY EXISTED BETWEEN THE APPELLANTS AND THE LIMITED PARTNERSHIP In the case sub judice, a review of the record fails to disclose that privity existed between the limited partnership and the appellants-limited partners. The limited partnership and the appellants-limited partners did not share a mutual or successive right of property or other interest. The record further fails to disclose that the interest of the limited partnership, which was to be protected by the appellees through their legal representation, was identical to the interest of the appellants- limited partners. The interest of the limited partnership was to purchase the apartment building for the purpose of later resale while the interest of the appellants-limited partners was to protect their own investments and to reap future profits. Clearly, the interest of the limited partnership as compared to the interest of the appellants-limited partners was different and thus no privity existed between the limited partnership and the appellants-limited partners vis-a-vis the appellees' legal representation. An analogous finding of a lack of privity between a client and a third party can be found upon review of case law which has dealt with attorney malpractice vis-a-vis a corporation and its shareholders. The following cases have essentially held that privity does not exist between a corporation and its shareholders with regard to the possible legal malpractice of an attorney who has been retained by the corporation. Cf. U.S. Industries, Inc. v. Goldman (1976), 421 F. -12- Supp. 7; Duncan v. Bender (Nov. 29, 1991), Geauga App. No. 90-G- 1610, unreported; Haley v. Raker (Nov. 1, 1991), Lucas App. No. L-90-324, unreported; Leader Natl. Ins. Co. v. Cyperski (Aug. 19, 1991), Stark App. No. CA-8421, unreported. Accordingly, the trial court did not err as a result of granting the appellees' motion for summary judgment. No genuine issues of material fact existed for the trier of fact and the appellees were entitled to summary judgment as a matter of law since the appellees were immune from liability to the appellants- limited partners with regard to the claim of legal malpractice. Judgment affirmed. -13- It is ordered that appellees recover of appellants their costs herein taxed. The court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this court directing the Common Pleas Court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. Exceptions. FRANCIS E. SWEENEY, J., CONCURS; NAHRA, J., CONCURS IN JUDGMENT ONLY. DAVID T. MATIA CHIEF JUSTICE N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announcement of decision (see Rule 26). Ten (10) days from the date hereof this document will be stamped to indicate journalization, at which time it will become the judgment and order of the court and time period for review will begin to run. .