Georgia Supreme Court Clarifies Lawyers’ Duty in Transactional Case
Reprinted courtesy of the ABA lpl eAdvisory
Editors Kathleen Ewins and Glenn Fischer

Barnes v. Turner, S04G0813 (Nov. 23, 2004)

Georgia Supreme Court holds that lawyers owe duty to secure client’s complete payment from creditor, not merely close the deal.

In this case, the client, Barnes, sought the advice of lawyer Turner regarding the sale of his auto parts business to the Lipps. While Turner’s representation resulted in the successful closing of the sale in 1996, Georgia law required that UCC financing statements filed at the time of closing be renewed after five years, i.e. in 2001.

Barnes did not file renewals of the financing statements, nor did Turner, and Turner did not advise Barnes that renewals needed to be filed in order to preserve a senior position as a secured creditor if the Lipps defaulted.

The Lipps did indeed default, their collateral for the sale having been pledged to two other creditors in other transactions. The Lipps went bankrupt, and Barnes lost his senor position as a secured creditor when the financing statements were not renewed.

Barnes sued Turner in 2002 for failing to safeguard Barnes’ security interest in the sale. Georgia has a four-year statute of limitations for legal malpractice, and so Turner responded by averring that because he filed the financial statements in 1996, he discharged his duty to protect his client’s interests. And, even if he had a duty to further inform Barnes of the need to renew the statements, his failure to inform occurred in 1996, and the statute of limitations had therefore run in 2000.

The trial court dismissed Barnes’ complaint and the appellate court affirmed.

The Georgia Supreme Court reversed (with three justices dissenting), however, finding that Turner’s duty to safeguard Barnes’ security interest went beyond the initial filing of the financial statements in 1996, and included the obligation to renew them himself if he failed to inform Barnes of the need to do so. They reasoned that, in situations where proceeds of a sale are collateralized and paid over time, the attorney’s obligation to protect that interest extends until full payment is made.

The ABA lpl eAdvisory is published by the ABA Standing Committee on Lawyers’ Professional Liability. Copyright ©2004 American Bar Association. Editors: Kathleen Ewins (kewins@longlevit.com) and Glenn Fischer (fischerg@staff.abanet.org). For additional information, or to obtain a subscription to the ABA lpl eAdvisory, you can contact the National Legal Malpractice Data Center, ABA Standing Committee on Lawyers’ Professional Liability on their website at http://www.abanet.org/legalservices/lpl/. This website is also accessible from the Resources Section (National) of the Legal Mutual website at http://www.legalmutual.com.

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