Academic journal article Defense Counsel Journal

Breach of Fiduciary Duty and Punitive Damages

Academic journal article Defense Counsel Journal

Breach of Fiduciary Duty and Punitive Damages

Article excerpt

AFTER years of defending professionals of all occupations, nothing much surprises us anymore. But for the uninitiated, particularly lawyers, the first time you are sued for malpractice can be a real shock. As legal malpractice claims have increased in number,(1) plaintiffs' lawyers who traditionally practiced in ordinary tort or products liability cases have taken an interest in suing lawyers and have brought along with them theories not traditionally found in professional liability litigation.

For example, it is now common to have garden variety malpractice complaints against lawyers include causes of action for breach of fiduciary duty, violations of professional responsibility rules, negligence, misrepresentation, and fraud. Damages now range from what the client may actually have lost or failed to win in the underlying deal or litigation, to emotional distress, disgorgement fees, and punitive damages.

A frightening scenario

These cases can go something like this:

Smitty was sitting in his office looking at the lake on a beautiful spring day when his tranquillity was altered by remembering the disaster that occurred last week in court. He had agreed to take over the prosecution of a case on behalf of his wife's cousin against a party insured by one of his clients. Although his wife's cousin told him repeatedly this conflict was no problem, Smitty did not think he had ever gotten a written waiver from her.

Smitty judged the case's merits as fair at best, but his client's previous lawyer was not as confident. If nothing else, Smitty thought he could salvage a win, although not as high as his client wanted, and he said as much several times. Then the case went badly in front of an increasingly hostile jury, and he lost big time.

Smitty was thinking of sending his wife's cousin flowers along with an invitation for dinner when his secretary told him someone needed to see him at reception as soon as possible. With one last look at the lakefront, Smitty thought it would be a nice day to play golf. A few minutes later, Smitty instead found himself served at the reception desk with a summons for the complaint his wife's cousin had just filed against him.

Returning to his office, Smitty began to read the complaint with increasing alarm. There were counts for malpractice and breach of fiduciary duty, breach of his ethical and professional responsibilities for failure to disclose his conflict of interest, and fraud. Damages ranged from the judgment he should have obtained to emotional distress and disgorgement of his fees and punitive damages. Smitty thought wryly that at least the complaint did not ask for his first-born.

At first, Smitty was stunned, then he got mad. "Can this be possible?" he thought. Can a client sue a lawyer for both malpractice and breach of fiduciary duty, add claims of ethical violations, seek damages for mental distress, and disgorgement of fees, and punitive damages?

The answer is yes and no, and this article will describe the differences between these varied causes of action, and the damages you are exposed to in each kind of case.

Legal malpractice

Legal malpractice is an unusual creature of law, having managed to evade categorization either as strictly a tort or contract action. Most courts seem to prefer the hybrid definition that legal malpractice is a claim for legal services, sounding in tort and arising from an express or implied contract.(2)

We lawyers have done a better job of raising the bar to pleading malpractice actions against ourselves than we have for our other professional clients, such as officers and directors. To plead a cause of action for legal malpractice, the disgruntled client must plead the existence of the attorney-client relationship, a duty arising from that relationship, a breach, proximate cause, and damages.(3)

The beauty in this seemingly simplistic mosaic is that the former client must plead and prove that counsel's negligence caused the loss of the underlying case if the client was the plaintiff in the underlying litigation, or the loss of a meritorious defense if the client was the defendant. …

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