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Ch. 4 Breach of Fiduciary Duty

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Ch. 4 Breach of Fiduciary Duty

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  1. Ch. 4 Breach 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)

  2. Combined Legal Strands: Tort + Equity + Agency Tort: negligent, reckless or intentional breaches of fiduciary duties Equity: account, 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

  3. P: Burden of Proof & D: Strategy • Some jurisdictions: relaxed standard (“substantial factor” rather than “but for”) • P & D both need for 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 & exclude evidence

  4. B. Disclosure Obligations Informed consent doctrine? Recall: Prob. 3-6 Summer Associate’s Memo, C makes 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 1.2, 1.6-10) 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

  5. 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.

  6. 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

  7. 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)

  8. 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

  9. 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?

  10. 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)

  11. Elements • 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

  12. 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

  13. 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