Lawyer Liability in Third Party Situations: The Meaning of the Kaye Scholer Case

Abstract

The Kaye Scholer I case has excited much attention and alarm within the legal profession. It is interpreted as greatly expanding the scope of lawyer liability to third parties and heralding much greater regulatory intervention into the relationship between lawyer and client. In some respects this interpretation is accurate. The Kaye Scholer proceeding is at least a "wake up call" to the legal profession, signalling that lawyers should be much more attentive to their legal and ethical obligations in transactional and regulatory matters. However, there is also much misunderstanding about Kaye Scholer, particularly the supposition that it created novel theories of lawyer liability to third parties. The purpose of this analysis is to explain what Kaye Scholer was about, what are the basic concepts of lawyer liability to third parties, and why the practicing bar should heed a "wake up call."