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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 1.Demanding.

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Presentation on theme: "Ch. 4 Breach of Fiduciary Duty A. Changing Language of Duty Contrast: measured language of negligence with demanding language of fiduciary duty 1.Demanding."— Presentation transcript:

1 Ch. 4 Breach of Fiduciary Duty A. Changing Language of Duty Contrast: measured language of negligence with demanding language of fiduciary duty 1.Demanding language: “puntilio of an honor most sensitive” vs. practical realities; need to re-ground in tort & contract common law standards 2.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 +/- 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

3 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

4 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, ) 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

5 Limits on Disclosure Obligations: Need Not Disclose Information if (text at ) 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 ) ∙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 , 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 ) 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 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 R OBERT W. H ILLMAN, H ILLMAN ON L AWYER M OBILITY


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