Shelton v. State: Clarifying Attorneys’ Duty to Non-Clients in Adoption Proceedings and Preclusion of Interstate Compact Relitigation

Introduction

In Shelton v. State of Montana, 2025 MT 71, the Montana Supreme Court addressed the scope of an attorney’s duty to third parties in the context of an adoption and the effect of collateral estoppel under the Full Faith and Credit Clause on relitigating compliance with the Interstate Compact on the Placement of Children (ICPC). Plaintiffs Christopher Shelton, Vicky Costa and Todd Costa challenged (1) the duty owed by adoption counsel Susan Ridgeway and Axilon Law Group to Shelton, (2) the State’s compliance with the ICPC as previously adjudicated in Utah, and (3) negligent misrepresentation by a DPHHS attorney. The Court affirmed dismissal of all claims, establishing key principles on attorney liability, interstate-compact preclusion, and the requirements for negligent misrepresentation.

Summary of the Judgment

Justice Beth Baker, writing for a unanimous Court, affirmed the District Court’s orders:

• No duty of care was owed by Ridgeway or Axilon to Shelton or the Costas because the adoption litigation was adversarial rather than a non-adversarial transaction intended to benefit third-party non-clients. The limited Watkins Trust exception for non-clients applies only where the attorney and client share “mutual intent” to benefit the non-client.
• The district court correctly applied collateral estoppel, under the Full Faith and Credit Clause, to bar Plaintiffs from relitigating whether Montana complied with the ICPC. The Utah district court had held, after remand and evidentiary hearing, that “all terms and conditions of the ICPC from the state of Montana were complied with,” and Shelton (and by privity the Costas) had a full and fair chance to contest that finding.
• Plaintiffs’ negligent misrepresentation claim failed because the alleged promise—that DPHHS’s attorney would “take action” to return L.S. if DNA proved Shelton was the father—related only to a future event, not a past or existing fact, and therefore could not satisfy the first element of negligent misrepresentation.

Analysis

Precedents Cited

• Watkins Trust v. LaCosta (2004 MT 144): Recognized an attorney’s duty to a non-client beneficiary when the client and attorney share a mutual intent to benefit that third party (e.g., drafting a trust for a named beneficiary).
• Harrison v. Lovas (2010 MT 128): Distinguished Watkins Trust where proposed trust amendments never took effect and the non-client plaintiffs were not intended beneficiaries at the time the legal services were rendered.
• Rhode v. Adams (1998 MT 73): Held that attorneys in adversarial proceedings owe no duty to non-client participants because the attorney-client relationship is fundamentally different in litigation.
• Crane Creek Ranch, Inc. v. Cresap (2004 MT 351) and Sweeney v. Dayton (2018 MT 95): Reinforced that absent a special relationship or mutual intent, attorneys owe no duty to third parties.
• Full Faith & Credit Cases—Boudette (2019 MT 268), Barrett (2015 MT 303): Confirm that sister-state judgments are entitled to the same preclusive effect as Montana judgments when rendered by a court with proper jurisdiction.
• Collateral Estoppel Standards—Beck (2024 MT 176), Stricker (2023 MT 209), Baltrusch (2006 MT 51), Brishka (2021 MT 129), McDaniel (2009 MT 159): Identify the four factors for issue preclusion (identity of issues, final judgment, party/privity, full and fair opportunity to litigate).
• Negligent Misrepresentation—Kitchen Krafters v. Eastside Bank (1989), WLW Realty Partners (2015 MT 312), Morrow v. Bank of America (2014 MT 117): Clarify that actionable misrepresentation must concern a past or existing material fact.

Legal Reasoning

The Court applied a de novo standard to both the Rule 12(b)(6) dismissal and the summary judgment order. It first addressed the attorney-duty question by reaffirming the general rule that lawyers “owe no duty to third parties with whom they have no agency relationship” unless the Watkins Trust mutual-intent exception applies. Here, Ridgeway’s representation of the biological mother in adversarial adoption litigation could not be reshaped into a transaction intended to benefit Shelton or the Costas. Imposing such a duty would conflict with the lawyer’s ethical obligation (M. R. Pro. Cond. 1.7) to loyally represent her client.

On ICPC compliance, the Court invoked the Full Faith and Credit Clause to treat the Utah district court’s binding finding—that Montana had complied with every ICPC requirement—as a final judgment on the merits. Each prong of collateral estoppel was satisfied: the issue decided (ICPC compliance) was identical; the decision was final; Plaintiffs (Shelton and by privity the Costas) were parties or in privity; and they had a full and fair opportunity to contest the question in Utah, including on remand and after evidentiary hearings.

Finally, for negligent misrepresentation, the Court emphasized that the tort protects reliance on existing facts—statements about future governmental action cannot support this claim. Because Clinch’s assurance concerned what might happen if DNA testing confirmed paternity, it failed the first element of a negligent misrepresentation cause of action.

Impact

• Confirms that adoption counsel owe no duty to non-client parents or relatives in adversarial adoption disputes, limiting legal malpractice exposure in contested placements.
• Demonstrates that ICPC compliance rulings in one state are binding nationwide, discouraging collateral challenges and promoting uniform interstate placement procedures.
• Reinforces the requirement that negligent misrepresentation must involve an existing fact, narrowing the scope of recoverable reliance claims against government attorneys or agencies.
• Provides clear guidance for future litigants on privity in interstate adoption or child-placement contexts, particularly where grandparents or third-party relatives seek to intervene.

Complex Concepts Simplified

• Attorney’s Duty to Third Parties: Lawyers normally owe duties only to their clients. A rare exception arises when a client and lawyer both intend to directly benefit someone who is not the client (e.g., drafting a trust naming a non-client beneficiary).
• Adversarial vs. Non-Adversarial Representation: In litigation or contested proceedings, an attorney’s loyalty is to the client’s cause, not to potential opponents—therefore no duty runs to those opponents.
• Interstate Compact on the Placement of Children (ICPC): A uniform agreement among states requiring sending-state approval, background checks, and receiving-state confirmation before placing a child across state lines for adoption or foster care.
• Full Faith and Credit: Under the U.S. Constitution, one state must honor the judicial decisions of another state as if they were its own, including preclusive effects.
• Collateral Estoppel (Issue Preclusion):
  1. The exact issue was decided previously.
  2. There was a final, on-the-merits judgment.
  3. The party against whom preclusion is asserted was involved or in privity.
  4. That party had a full and fair chance to litigate the issue.
• Negligent Misrepresentation: A false statement of existing fact, made without a reasonable basis, intended to induce reliance, upon which another justifiably relies and is damaged.

Conclusion

Shelton v. State underscores that attorneys representing biological parents in contested adoptions cannot be sued by other relatives for negligent failures unless the non-clients were intended beneficiaries of a non-adversarial transaction. It also cements the nationwide finality of interstate adoption-compact findings and clarifies that promises about future governmental action do not give rise to negligent misrepresentation liability. Together, these rulings promote certainty in adoption law, safeguard the integrity of interstate child-placement procedures, and delineate the boundaries of legal-malpractice and reliance-based tort claims against attorneys and public agencies.