Reminder: Think Twice Before Filing Third Party Claims in Negligence Cases

A recent federal court ruling dismissed a law firm’s third party claims against an accounting firm for common-law indemnification, contribution, and equitable subrogation, with the court finding that the law firm should raise its arguments concerning the liability of the accounting as affirmative defenses rather than as independent claims.

The law firm was sued for professional malpractice arising from representation of certain clients in a business investment. The plaintiffs never realized a return on their investment and one of the plaintiffs later filed bankruptcy. The clients alleged that the law firm failed to analyze the financial condition of the investment, failed to recommend that others conduct a financial analysis of the investment, and failed to obtain the documents necessary to perform such an analysis, causing plaintiffs’ damages.

The law firm defended the professional malpractice claim on the grounds that it was retained to provide legal advice, but was not retained to provide advice concerning the financial aspects of the investment. In addition to raising affirmative defenses to the plaintiffs’ claim, the law firm filed third party claims against an accounting firm that was alleged to have been hired by the plaintiffs to assist in completing the investment transaction. The law firm alleged that a special relationship existed between it and the accounting firm, as each had a specialized skill set upon which they and the other members of the investment team relied. According to the law firm, the accounting firm breached the duty to the plaintiffs to evaluate and properly advise the plaintiffs regarding the financial aspects and tax implications of the investment. 

The law firm alleged in the third party complaint that it was without fault and therefore entitled to common law indemnification from the accounting firm. The law firm also sought contribution for the accounting firm’s pro rata share of common liability to the plaintiffs, and further alleged that the law firm was entitled to equitable subrogation, to the extent that the law firm paid any damages to the plaintiffs on the accounting firm’s behalf. The accounting firm filed a motion to dismiss all third party claims and the court granted the motion.

Regarding the claim for common law indemnification, the court noted the requirement that a party seeking indemnity must be without fault, since "there can be no indemnity between joint tortfeasors." Houdaille Indus. Inc. v. Edwards, 374 So.2d 490, 492 (Fla. 1979). If the plaintiffs were to ultimately prevail on the legal malpractice claim, however, they would necessarily have demonstrated that the law firm neglected a reasonable duty. Thus, the law firm would be at fault and unable to establish an element of the indemnification claim against the accounting firm. The court also noted that although the law firm alleged that it had a "special relationship" with the accounting firm, the law firm pleaded no facts indicating that it could be held vicariously, constructively, or technically liable for the accounting firm’s alleged negligence. Rather, the law firm alleged it was not retained to provide financial advice and that the accounting firm was retained to provide such advice. In dismissing the claim for common law indemnification, the court indicated that the proper course was for the law firm to assert the accounting firm’s negligence as an affirmative defense, which it had already done. 

Regarding the contribution claim, the court pointed to the 2006 amendment to §768.81(3), Fla. Stat., which provides that a court "shall enter judgment against each party liable on the basis of such party's percentage of fault and not on the basis of the doctrine of joint and several liability." The court rejected the law firm’s reliance upon cases that preceded this amendment. The court noted that as a result of the 2006 amendment, a third-party claim for contribution is obsolete in negligence actions, and the party seeking contribution should instead plead the fault of the non-party as an affirmative defense.

In dismissing the claim for equitable subrogation, the court recognized that equitable subrogation is an appropriate remedy when a party pays a claim that, in equity, should have been paid by another party, citing Welch v. Complete Care Corp., 818 So.2d 645, 648 (Fla. 2d DCA 2002). However, equitable subrogation is available only when the party seeking subrogation is not primarily liable for the debt. Because the law firm’s claim for subrogation was based on the unsupported allegation that it would only become liable based a theory of secondary liability such as constructive or vicarious liability due to its alleged "special relationship" with the accounting firm, the equitable subrogation claim failed.

For more information on this topic, contact Lori A. Heim at lheim@bushross.com or (813) 204-6444, or Marjorie S. Hensel at mhensel@bushross.com or (813) 204-6443.