Security Bank & Trust Company vs. Larkin, Hoffman, Daly & Lindgren, Ltd.

Larkin drafted a will and revocable trust agreement for Gordon P. Savoie in 2009.

Following a number of specific bequests, Article 7 of the trust agreement directed that 45

percent of the remaining trust assets be distributed to a beneficiary who was more than 37.5

years younger than Savoie. As a result, the distribution was subject to a

generation-skipping transfer tax totaling about $1.654 million. See 26 U.S.C. §§ 2601–03,

2611, 2651(d) (2012).

Following Savoie’s death, Security Bank was appointed trustee and personal

representative of Savoie’s estate. In these capacities, Security Bank sued Larkin for legal

malpractice. Security Bank alleged that Larkin never advised Savoie of the

generation-skipping transfer tax, nor discussed with him options for reducing the tax

burden to the estate.

Larkin moved for judgment on the pleadings under Minn. R. Civ. P. 12.03. Larkin

argued that Security Bank lacked standing as personal representative of Savoie’s estate to

bring an action for legal malpractice because no cause of action accrued during Savoie’s

lifetime. Larkin also argued that Security Bank lacked standing as trustee of the Gordon

P. Savoie Revocable Trust because Larkin had no attorney-client relationship with Security

Bank in that capacity.

The district court granted Larkin’s motion. The court applied the “some damage”

rule of accrual discussed in Antone v. Mirviss, 720 N.W.2d 331 (Minn. 2006). The court

determined that “some damage” did not occur until after Savoie’s death, at the point when

the estate became liable for the generation-skipping tax. Thus, as no cause of action

accrued during Savoie’s lifetime, no cause of action survived to Security Bank as personal

representative. Further, the court held that Security Bank did not have standing as trustee

because it did not have an attorney-client relationship with Larkin, and was not a direct and

intended beneficiary of Larkin’s relationship with Savoie.

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In a published decision, the court of appeals reversed. Security Bank & Trust Co.

v. Larkin, Hoffman, Daly & Lindgren, Ltd., 897 N.W.2d 821, 828 (Minn. App. 2017). The

court agreed with the district court that, for a claim of legal malpractice to survive to a

client’s personal representative after death, the cause of action must accrue during the

client’s life. Id. at 824–25 (citing Minn. Stat. § 524.3-703(c) (2016)). The court interpreted

Antone’s requirement of “some damage” to include “reliance” on an attorney’s allegedly

negligent advice. Id. at 825–27. Accordingly, the court concluded that “some damage”

occurred when Savoie executed the will and trust because he relied on the allegedly

negligent advice of the attorneys “to the detriment of [his] legal rights.” Id. at 826–27.

Therefore, the court held, the cause of action accrued to Savoie before his death, and

Security Bank had standing to pursue the claim on behalf of the estate as personal

representative. Id. at 827. Because the court determined that Security Bank had standing

as personal representative, the court did not address whether Security Bank had standing

as trustee. Id. at 828.

We granted Larkin’s petition for further review on the issue of whether the cause of

action accrued before Savoie’s death. We also granted Security Bank’s request for

cross-review. Security Bank argues that the court of appeals incorrectly concluded that, if

no cause of action for legal malpractice accrues during a client’s lifetime, “no cause of

action exists to which a personal representative may succeed after the client’s death[.]” Id.

at 825. Security Bank also renews its argument that it has standing as trustee of the Gordon

P. Savoie Revocable Trust to sue Larkin for negligent preparation of the estate-planning

documents.

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ANALYSIS



We review a district court’s grant of a motion for judgment on the pleadings “to

determine whether ‘the complaint sets forth a legally sufficient claim for relief.’ ” Burt v.

Rackner, Inc., 902 N.W.2d 448, 451 (Minn. 2017) (quoting Zutz v. Nelson, 788 N.W.2d

58, 61 (Minn. 2010)). In considering whether the district court properly granted the

motion, “we ‘consider only the facts alleged in the complaint, accepting those facts as true

and drawing all reasonable inferences in favor of the nonmoving party.’ ” Id. Whether a

complaint sets forth a legally sufficient claim for relief is a question of law that we review

de novo. Walsh v. U.S. Bank, N.A., 851 N.W.2d 598, 606 (Minn. 2014).

For Security Bank to bring a cause of action for legal malpractice, Security Bank

must have standing to bring the action in the first instance. See In re Petition for

Improvement of Cty. Ditch No. 86, 625 N.W.2d 813, 817 (Minn. 2001) (“Standing is a

prerequisite to a court’s exercise of jurisdiction.”). Standing is the “requirement that a

party have a sufficient stake in a justiciable controversy.” McCaughtry v. City of Red Wing,

808 N.W.2d 331, 338 (Minn. 2011) (citation omitted) (internal quotation marks omitted).

A party may acquire standing either as the beneficiary of a statutory grant of standing or

by suffering an “injury-in-fact.” Webb Golden Valley, LLC v. State, 865 N.W.2d 689, 693

(Minn. 2015). Further, in the legal-malpractice context, a non-client third party must

establish that it was a “direct and intended beneficiary” of the attorney’s services.

McIntosh County Bank v. Dorsey & Whitney, LLP, 745 N.W.2d 538, 547 (Minn. 2008).

Security Bank argues that it has standing either in its capacity as personal

representative, or in its capacity as trustee. We address each argument in turn.

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I.

The parties’ arguments contemplate two potential routes for Security Bank to have

standing as personal representative: as successor to a cause of action that accrued to Savoie

during his lifetime, or in its own right regardless of whether a cause of action accrued

before or after Savoie’s death. As set out below, neither route leads to standing for Security

Bank.

“Accrual” refers to the point in time when “a plaintiff can allege sufficient facts to

survive a motion to dismiss for failure to state a claim upon which relief can be granted.”

Frederick v. Wallerich, 907 N.W.2d 167, 173 (Minn. 2018) (citing Antone, 720 N.W.2d at

335). Accrual of a cause of action requires the existence of operative facts supporting each

element of the claim. See id. (“An analysis of when a claim accrues . . . necessarily

involves consideration of all elements of the claim.”); Cause of Action, Black’s Law

Dictionary (10th ed. 2014) (defining “cause of action” as “[a] group of operative facts

giving rise to one or more bases for suing; a factual situation that entitles one person to

obtain a remedy in court from another person”). Thus, a cause of action does not “exist”

as a matter of law until it accrues—the point at which the operative facts supporting each

element of the claim come into existence.

To state a claim for legal malpractice related to transactional legal services, which

are at issue here, a plaintiff must plead four elements: (1) the existence of an attorney-client

relationship; (2) acts constituting negligence or breach of contract; (3) that such acts were

the proximate cause of plaintiff’s damages; and (4) that, but for the attorney’s conduct, the

plaintiff would have obtained a more favorable result in the relevant matter. Frederick,

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907 N.W.2d at 173.

The parties do not dispute that the facts alleged in Security Bank’s complaint satisfy

the elements of a claim for legal malpractice insofar as Security Bank stands in its capacity

as personal representative.1 Specifically, Larkin does not dispute that Security Bank has

adequately alleged that damages occurred as a result of the alleged negligence. Instead,

Larkin disputes when the alleged damages occurred. Larkin argues that, if damages did

not occur during Savoie’s lifetime, Security Bank is precluded from bringing a claim for

legal malpractice against it. In other words, because the cause of action did not accrue, or

exist, during the life of Savoie, no cause of action survived to Security Bank. Security

Bank disputes that the cause of action did not accrue during Savoie’s lifetime—an

argument we address below—but its principal argument is that a legal-malpractice claim

need not accrue during a deceased client’s lifetime to allow the personal representative to

pursue it after the client’s death.

A.

We first address whether a claim for legal malpractice must accrue during the

client’s lifetime, or whether a personal representative may pursue a claim for legal

malpractice that did not accrue until after the client’s death. Security Bank argues that

Minn. Stat. § 524.3-703, as a matter of law, affords a personal representative standing to



1 In its capacity as personal representative, Security Bank would “stand[] in the shoes” of Savoie. 4 Ronald E. Mallen, Legal Malpractice § 36:9 (2018 ed.). Thus, there is no dispute that the first element—the existence of an attorney-client relationship—is satisfied with respect to Security Bank’s standing as personal representative. For the purposes of Security Bank’s alternative argument—that it has standing as trustee— Security Bank must still plead facts that satisfy this first element.

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pursue any legal-malpractice claim on behalf of a deceased client because those claims

“survive” to the personal representative under Minn. Stat. § 573.01 (2016).

Minnesota Statutes § 573.01 states:

A cause of action arising out of an injury to the person dies with the person of the party in whose favor it exists, except as provided in section 573.02. All other causes of action by one against another, whether arising on contract or not, survive to the personal representatives of the former and against those of the latter.



The parties agree that legal-malpractice claims survive to a decedent’s personal

representative because such claims do not “aris[e] out of an injury to the person” under

Minn. Stat. § 573.01. See Johnson v. Taylor, 435 N.W.2d 127, 129 (Minn. App. 1989),

rev. denied (Minn. Apr. 19, 1989).

The question remains whether an action must accrue during the lifetime of the

decedent to survive to the personal representative, thus giving the personal representative

standing under Minn. Stat. § 524.3-703. That statute states, in relevant part:

Except as to proceedings which do not survive the death of the decedent, a personal representative of a decedent domiciled in this state at death has the same standing to sue and be sued in the courts of this state and the courts of any other jurisdiction as the decedent had immediately prior to death.



Minn. Stat. § 524.3-703(c).

Security Bank’s argument—that a claim need not accrue during the client’s life—is

not borne out by the plain, unambiguous text of section 524.3-703(c). See State v. Boecker,

893 N.W.2d 348, 351 (Minn. 2017) (“The plain language of the statute controls when the

meaning of the statute is unambiguous.”). The statute states that “a personal representative

. . . has the same standing to sue . . . as the decedent had immediately prior to death.”

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Minn. Stat. § 524.3-703(c) (emphasis added). For Security Bank’s argument to be valid,

Savoie himself would have needed to have standing to bring a legal-malpractice claim

against Larkin immediately before his death. In other words, the cause of action would

need to have existed, or accrued, before Savoie died. Thus, the only question relevant to

Security Bank’s standing in its capacity as Savoie’s personal representative is whether a

cause of action accrued to Savoie before he died.

B.

We have previously addressed the issue of accrual for the purpose of determining

when the statute of limitations on a cause of action for legal malpractice begins to run.2 In

that context, we have adhered to the “damage rule” of accrual. See Frederick, 907 N.W.2d

at 178; Antone, 720 N.W.2d at 335–36; Herrmann v. McMenomy & Severson, 590 N.W.2d

641, 643 (Minn. 1999).

The “damage rule” differs from two rules of accrual used in other jurisdictions—

the “occurrence rule” and the “discovery rule.” The “occurrence rule” holds that a cause

of action for professional negligence accrues simultaneously with the performance of the

negligent act. Antone, 720 N.W.2d at 335; see also Mallen, supra, § 23:22. The “discovery

rule” holds that the cause of action accrues at the moment when the client knows or should

know the essential facts giving rise to the cause of action. Antone, 720 N.W.2d at 335;

Mallen, supra, § 23:54. The “damage rule” strikes a middle ground, requiring that “some

damage” has occurred as a result of the alleged professional negligence, but not requiring



2 The parties do not argue that a different rule of accrual applies for purposes of survival than for the purpose of commencing the statutory limitations period.

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that a prospective plaintiff be aware of all the operative facts giving rise to a cause of action.

Antone, 720 N.W.2d at 335–36. We have adopted the damage rule, recognizing that it

accomplishes the goals of discouraging “speculative litigation” and limiting “open-ended

liability.” See id. at 335.

We have interpreted and applied the damage rule in the legal-malpractice context

on three previous occasions. First, in Herrmann v. McMenomy & Severson, Herrmann

alleged that the law firm was negligent in failing to advise him that certain transactions

between Herrmann’s construction company and the company’s employee pension plan and

trust were prohibited by federal tax law. 590 N.W.2d at 642. As a result, the construction

company became liable for “significant federal excise taxes and interest.” Id. We held

that a cause of action for legal malpractice accrues when “ ‘some’ damage has occurred as

a result of the alleged malpractice.” Id. at 643. In Herrmann’s case, the action accrued at

the moment when the construction company and the plan engaged in the “first prohibited

transaction,” causing the construction company to become “immediately liable for the

excise tax and interest required” by federal law. Id. at 643–44.

Later, in Antone, we addressed the preparation of an allegedly defective antenuptial

agreement. 720 N.W.2d at 333. Antone hired attorney Mirviss to draft an antenuptial

agreement to protect Antone’s interest in any marital appreciation of his premarital

property. Id. Under the assumption that the agreement contained this protection, Antone

married his fiancée. Id. Twelve years later, during divorce proceedings, Antone

discovered that the agreement he and his fiancée (later spouse) signed entitled the spouse

to a share of the marital appreciation of Antone’s premarital property, despite Mirviss’s

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assurances to the contrary. Id. Antone sued Mirviss for legal malpractice and Mirviss

moved to dismiss, arguing that Antone’s claim fell outside the six-year statute of

limitations. Id. at 333–34. We agreed.

We defined the occurrence of “some damage” as “the occurrence of any

compensable damage, whether specifically identified in the complaint or not.” Id. at 336.

We concluded that Antone suffered “some damage” when he entered into his marriage. Id.

at 337. At that point, the consequences of the ineffective antenuptial agreement became

“immediate and irremediable.” Id. We also said, however, that “our case law does support

a broad interpretation of the concept of ‘some damage.’ ” Id. at 336. “Some damage” can

occur, and a cause of action accrues, even where “greater injury remains uncertain.” Id.

(quoting 3 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 22.12 (2006))

(internal quotation marks omitted).

Most recently, in Frederick v. Wallerich, we addressed whether successive acts of

alleged negligence by the same attorney can give rise to independent causes of action for

legal malpractice. 907 N.W.2d at 174. In Frederick, the attorney prepared an

unenforceable antenuptial agreement signed by Frederick and his then-fiancée. Id. at 170–

71. Later, the same attorney drafted a will for Frederick that incorporated the defective

antenuptial agreement, affirmatively reassuring Frederick that the agreement was valid and

enforceable. Id. at 171. Following his divorce, Frederick sued the attorney for malpractice,

even though the statute of limitations for the alleged negligent preparation of the

antenuptial agreement had expired. Id. Frederick argued, however, that the attorney’s

subsequent representations regarding the validity of the antenuptial agreement, together

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with her incorporation of the agreement into the will, constituted an independent act of

legal malpractice, triggering its own statute of limitations period. Id. at 172. We agreed.

In assessing whether “some damage” occurred when the attorney drafted, and

Frederick executed, his will, we explained that Frederick had lost the “opportunity to

mitigate additional damages” as a result of a second negligent act—the attorney’s failure

to inform Frederick of the invalidity of the antenuptial agreement when drafting the will.

Id. at 179. As a result of this second negligent act, Frederick was exposed to “an additional

$1 million in asset appreciation” owed to his spouse. Id. (emphasis added).

In each of these three cases, “some damage” involved concrete harm created either

by financial liability or the loss of a legal right. Here, no concrete harm as a result of

Larkin’s allegedly negligent advice occurred until after Savoie’s death, when the estate

became liable for the generation-skipping transfer tax. Security Bank’s complaint contains

no allegation that Savoie himself sustained any material injury or harm as a result of his

reliance on Larkin’s advice. Mere continued reliance by the client on allegedly negligent

advice given earlier by the attorney is not sufficient to give rise to “some damage.” To

hold as such would undermine the policy goals supporting the damage rule of accrual. See

Antone, 720 N.W.2d at 335. Accordingly, under the damage rule, no cause of action for

malpractice survived to Security Bank because one did not accrue during Savoie’s

lifetime.3



3 In so holding, we do not foreclose the possibility that a personal representative could, in theory, plead facts that would give rise to an estate-planning malpractice claim that accrued before a client’s death because the personal representative sufficiently alleged that “some damage” occurred during the client’s lifetime.

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II.

In its capacity as trustee of the Gordon P. Savoie Revocable Trust, Security Bank

argues that it has standing to bring a claim for legal malpractice on behalf of the trust and

on behalf of itself as trustee. See Minn. Stat. § 501C.0816(23) (2016) (providing a trustee

with the authority to “prosecute or defend an action, claim, or judicial proceeding in any

jurisdiction to protect trust property and the trustee in the performance of the trustee’s

duties”).

As a general rule, attorneys are “liable for professional negligence only to a person

with whom [they] ha[ve] an attorney-client relationship.” McIntosh, 745 N.W.2d at 545.

This requirement of “privity” goes to the first element of a claim for legal malpractice—

the existence of an attorney-client relationship. See Frederick, 907 N.W.2d at 173

(explaining the elements of a claim for legal malpractice); McIntosh, 745 N.W.2d at 545

(explaining the privity requirement in legal-malpractice actions). Thus, without

establishing privity or satisfying an exception to the general rule requiring privity, a

plaintiff cannot state a claim for legal malpractice. Because Larkin did not have an

attorney-client relationship either with Security Bank or with the trust,4 Security Bank must







4 We note that Security Bank’s arguments regarding its standing as trustee have not been clear or consistent. In its first brief to our court, Security Bank asserted that “[t]he trustee of a revocable trust acts as the grantor, following the death of the grantor. As such, the trustee has a direct attorney-client relationship with the attorneys that created the trust.” (Emphasis added.) Security Bank cites no legal authority and provides no additional analysis supporting these propositions. Moreover, Security Bank appears to have abandoned this argument in its reply brief and at oral argument.



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satisfy an exception to the general rule requiring privity.

We recognize an exception in the estate-planning context when a non-client third

party was a “direct and intended beneficiary of the lawyer’s services.” Marker v.

Greenberg, 313 N.W.2d 4, 5 (Minn. 1981) (citation omitted) (internal quotation marks

omitted). We have said that this exception is “very limited.” Id.

In McIntosh, we outlined a two-step inquiry to determine whether a non-client third

party can pursue a claim for legal malpractice as a “direct and intended beneficiary” of

attorney legal services. 745 N.W.2d at 547. The party must satisfy the threshold

requirement that it was, in fact, a “direct and intended beneficiary” of the attorney’s

services. Id. If the party satisfies that threshold requirement, we look to the so-called

“Lucas factors” to ascertain “the extent of the duty” that the attorney owed to the third

party.5 Id.

Thus, the first question we must address is whether a trustee, or the trust itself, can

be a “direct and intended beneficiary” of an estate-planning attorney’s services. A third

party is “a direct beneficiary of a transaction if the transaction has[,] as a central purpose[,]

an effect on the third party and the effect is intended as a purpose of the transaction.” Id.



5 We adopted the Lucas factors in Marker v. Greenberg, 313 N.W.2d at 4, 5. The factors come from a California case, Lucas v. Hamm, 364 P.2d 685 (Cal. 1961). In Lucas, the California Supreme Court said that “the determination whether in a specific case the [attorney-]defendant will be held liable to a third person not in privity . . . involves the balancing of various factors.” Id. at 687. Those include: [T]he extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury, and the policy of preventing future harm. Id.

15

(emphasis added). A third party is an “intended beneficiary” if the attorney is “aware of

the client’s intent to benefit the third party.” Id. at 547–48 (emphasis added).

Estate-planning services were not at issue in McIntosh, but we characterized the

estate-planning context as the classic situation where a client makes an intent to directly

benefit third parties clear by naming them in estate-planning instruments. See generally

id. at 545–48 (discussing “the will-drafting context in which the third-party beneficiary

theory was first developed”). In dicta, we said that in “drafting situations, whether the

instruments are wills, trust agreements, or deeds, the attorney is necessarily aware of the

client’s intent when the client asks for documents making gifts or transferring property to

particular persons named in the instruments.” Id. at 548.

The instrument drafted here included a trust. A trust creates a “separation of the

legal and beneficial interests in a thing or res, as it is called, whereby the legal interests in

the trust res are held by a person, the trustee, for the benefit of another, the beneficiary,

who has an equitable interest in the res to receive whatever benefits he is entitled to

therefrom by the terms of the trust.” Farmers State Bank of Fosston v. Sig Ellingson &

Co., 16 N.W.2d 319, 322 (Minn. 1944). In other words, a trust has three basic components:

a trustee, a beneficiary, and the “thing,” or res, the interest in which is divided between the

trustee and the beneficiary. A trust, then, is not itself a “thing” or a person under the law.

Moreover, in McIntosh, we distinguished between “instruments” drafted by an

attorney, and those “particular persons” whom the client intends to benefit by “the

instruments.” 745 N.W.2d at 548. Those “particular persons,” typically the trust

beneficiaries, are the direct and intended beneficiaries of the attorney’s legal services; “the

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instruments” are merely a vehicle by which a person benefits from attorney legal services.

See id. Therefore, the trust itself cannot be a direct and intended beneficiary of Larkin’s

legal services.

Security Bank also argues that, as trustee and “the entity that paid the taxes,” it was

itself a direct and intended beneficiary of Larkin’s services to Savoie. According to

Security Bank’s complaint, “[u]pon the death of Gordon Savoie, Paul Plunkett became the

trustee, due to the document drafted by [Larkin]. Later on, when a dispute arose over the

administration of the trust, Plaintiff, Security Bank & Trust Co. was designated and

appointed successor trustee and personal representative.” Other than describing these

arrangements, Security Bank’s complaint does not contain any allegations pertaining to

Savoie’s intent to benefit Security Bank. Further, although Savoie’s will and trust

agreement are in the record before us, those documents do not establish any intent to benefit

Security Bank.

Assuming a trustee could, in some circumstances, be a direct and intended

beneficiary of an estate-planning attorney’s services, Security Bank has not effectively

pleaded such a theory. Even if Savoie’s estate plan had, “as a central purpose[,] an effect”

on Security Bank, we cannot say based on our review of the complaint that Larkin was

“aware of [Savoie’s] intent to benefit” Security Bank. McIntosh, 745 N.W.2d at 548.



Under such circumstances, we cannot conclude that Security Bank was a direct and

intended beneficiary of Larkin’s estate-planning services.

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Because Security Bank has failed to satisfy the threshold question in our

third-party-beneficiary analysis, we do not reach the Lucas factors. Id. at 549 (“Because

the respondents are not direct and intended beneficiaries, we do not reach the Lucas

factors.”). We therefore conclude that Security Bank has not satisfied the third-party

exception to the privity requirement, and thus has not satisfied the first element of a legal

malpractice claim. Accordingly, Security Bank cannot state a claim for legal malpractice

against Larkin in its capacity as trustee.

For the foregoing reasons, we reverse the decision of the court of appeals.



Reversed