Ch. 4 Breach of Fiduciary
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Ch. 4 Breach of Fiduciary Duty A. Changing Language of Duty Contrast: measured language of negligence with demanding language of fiduciary duty. Demanding language: “ puntilio of an honor most sensitive” vs. practical realities; need to re-ground in tort & contract common law standards

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Combined Legal Strands: Tort + Equity + Agency +/- Contract

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Combined legal strands tort equity agency contract

Ch. 4 Breach of Fiduciary DutyA. Changing Language of DutyContrast: measured language of negligence with demanding language of fiduciary duty

Demanding language: “puntilio of an honor most sensitive” vs. practical realities; need to re-ground in tort & contract common law standards

Essential fiduciary duties: preserve confidences, avoid impermissible conflicts (loyalty), honesty & fair dealings, safeguard property. See Rstmt §16(3)

Combined legal strands tort equity agency contract

Combined Legal Strands: Tort + Equity + Agency +/- Contract

Tort: negligent, reckless or intentional breaches of fiduciary duties

Equity: accounting, injunction, constructive trust, forfeiture; “equity does what needs to be done” & malleable equitable doctrines (unclean hands, estoppel, etc.)

Agency: Client is Principal, with authority to control & direct conduct of Agent (including Lawyer) See, e.g., Rstmt §20: Duty to inform & consult with Client

P burden of proof d strategy

P: Burden of Proof & D: Strategy

  • Some jurisdictions: relaxed standard (“substantial factor” rather than “but for”)

  • P & D both need expert witnesses (single expert to address both negligence & fiduciary duties)

  • Risk that conflict of interest can morphe ordinary negligence claim into actionable fiduciary breach > increase damage exposure

  • Defense strategies: motions to dismiss, for summary judgment & to exclude evidence

B disclosure obligations

B. Disclosure Obligations

Informed consent doctrine?

Recall: Prob. 3-6 Summer Associate’s Memo. C should make settlement decision with Informed Consent (IC), after full disclosure of material risks & relevant alternatives.

See Rstmt §20, RPC 1.0(e) “agreement …to proposed course of conduct after L communicated adequate info. & explanation about mat’l risks of & rsnbly avail. alts. to proposed course of conduct. (used in RPC 1.2, 1.6-1.9)

Highest disclosure obligations apply when adversity in interests of lawyer & client, especially lawyer self-interest (e.g., fees, business transactions; sex; confidential information; other preferred clients)

Text at 105-111

Limits on disclosure obligations need not disclose information if text at 109 11

Limits on Disclosure Obligations: Need Not Disclose Information if (text at 109-11)

  • Beyond scope of representation;

  • Immaterial; unreliable;

  • Already known by client;

  • Competing obligations require confidentiality;

  • Client reasonably agreed to nondisclosure;

  • Disclosure would cause serious harm to client or others.

C fee forfeiture

C. Fee Forfeiture

Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999) (text pp. 112-16)

∙Alleged breaches; procedural posture; disposition

·Reciprocal influence of Restatement tentative drafts & judicial decisions; conversion table (Tent. Draft § 49 > as adopted in 2000 §37)

∙Judicial discretion to consider total or partial forfeiture, even in absence of actual harm to client

∙Standard: “clear and serious” violation of duty owed client; TX: public interest (protect integrity of L/Cl relationships by discouraging agents’ disloyalty)

∙Jury: disputed fact questions

Judge: questions of law, amount of forfeiture

Rstmt 37 fee forfeiture factors

Rstmt §37 Fee Forfeiture Factors

  • Gravity & timing of violation

  • Willfulness

  • Effect on value of lawyer’s work

  • Actual or threatened harm to client

  • Adequacy of other remedies

  • Public interest in maintaining integrity of attorney-client relationships (Texas)

Problem 4 1 we are just friends text at 116 17 skipped

Problem 4-1 “We are Just Friends” text at 116-17, SKIPPED

  • L&L: made lateral move from P&W (Atlanta, associates in employment litigation) to A&B (Memphis litigation matters, “non-equity partners”, compensation package partly based on business generated)

  • L&L for Plaintiff Jane Cady v. Midsouth (P&W lawyers as fact witnesses): unsuccessful employment arbitration before single arbitrator

  • TASK: Evaluate potential exposure for Malpractice Carrier

Prob 4 1

Prob. 4-1

  • Fiduciary breaches?

    • Litigation decisions? (failure to cx P&W fact witnesses)

    • Non-disclosure of relationship w/ P&W? vs. active deception?

    • Breach of loyalty?

  • Damages caused to Client?

    • Fee forfeiture?

D aiding abetting a breach of fiduciary duty text pp 117 28

D. Aiding & Abetting a Breach of Fiduciary Duty (text pp. 117-28)

  • Contours of liability remain uncertain (i.e., “dangerous theory”

  • P = client (e.g., corp. or partnership); D L helped constituent, e.g., President or another partner breach duty owed to client)

  • Liability more difficult where P = nonclient (e.g., Norton, situations in Rstmt §51 & material in Ch. 5)



  • Fiduciary breached duty owed to P (e.g., Collensbee breached duty owed Norton)

  • Dft Lawyer provided “substantial assistance” to fiduciary’s achievement of the breach

  • Dft Lawyer knew, or is deemed to have known that fiduciary’s conduct was a breach (circumstantial evidence or constructive knowledge)

  • Fiduciary’s breach caused P’s damages

Reynolds v schrock 142 p 3d 1062 or 2006 text pp 125 27

Reynolds v. Schrock, 142 P.3d 1062)(Or. 2006) text pp. 125-27

  • Qualified privilege insulates lawyer from liability, if lawyer’s conduct on behalf of client falls within the permissible scope of scope of representation (e.g., L merely acted as scrivener, not chargeable with knowledge of and complicity with the breach)

  • NOT privileged if L 1) acted outside permissible scope of the cl/L relationship; 2) assisted client with crime or fraud; 3) acted in self-interest

E intra firm fiduciary duties

E. Intra-Firm Fiduciary Duties

  • Partners: mutual agents with full range of duties (disclose material facts, not divert business opportunities, engage in competing enterprise, or otherwise prefer own self-interest over partners)

  • Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193 (Tex. 2002) (associate does not breach duty to firm by referring client or potential client to outside lawyer, absent any pecuniary gain to associate)

  • Many complex legal issues, especially on lateral moves, break-off firms. See Robert W. Hillman, Hillman on Lawyer Mobility

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