Wednesday, February 24, 2016

Court Rules In Favor Of An Attorney Regarding Claims Arising From A Conflict of Interest

Originally published by David Fowler Johnson.

In Fitts v. Richards-Smith, three brothers were riding in a car when the car hit another vehicle properly stopped in the road. 2016 Tex. App. LEXIS 1542 (Tex. App.—Texarkana February 17, 2016, no pet. history). The driver was killed and the two other brothers were seriously injured. The family of the killed driver and the two other brothers and their families all hired the same counsel to pursue a claim against the car manufacturer. After counsel was retained, the counsel allegedly did not (1) advise some of the clients that they might have had a claim against the driver’s estate for negligence, (2) disclose a conflict of interest arising from their joint representation of the entire family, and (3) advise them about and preserve the statute of limitations on their viable claims.

Without their attorneys’ knowledge, some of the family made a claim under the driver’s primary liability insurance and settled their claims for around $250,000 (policy limits). They then attempted to collect under an umbrella policy that had around $5 million in coverage, but that carrier denied the claim based on the settlement with the primary insurance carrier and the resulting written release of claims that released the insured. After a settlement with the automobile manufacturer, the family sued their attorneys for breach of fiduciary duty and malpractice, alleging that the attorneys’ malpractice prevented them from recovering under the umbrella policy. The trial court granted summary judgment for the attorneys, and the family appealed.

The court of appeals first addressed whether the family had a breach of fiduciary duty claim. The court held that legal malpractice is not the only cause of action under which a client can recover from his or her attorney. When the facts of a case support claims against a lawyer for something other than professional negligence, the claims may be allowed. However, unless the claim cannot be characterized as advice, judgment, or opinion arising from the attorney-client relationship, the cause of action is for malpractice. The court held that courts do not allow a case arising out of an attorney’s bad legal advice or improper representation to be split out into separate claims for negligence, breach of contract, or fraud, because the real issue remains whether the professional exercised that degree of care, skill, and diligence that professionals of ordinary skill and knowledge commonly possess and exercise.

The court also held that the question is not so easily determined where there is an allegation of failing to disclose a conflict of interest. While “some Texas courts have recognized that breach-of-fiduciary-duty claims alleging the lawyer obtained an improper benefit from his representation or improperly failed to disclose his own conflict of interest are not professional negligence claims[,] . . . other courts have held the claim is a professional negligence claim if the claim is really that the lawyer’s conflict of interest prevented him from adequately representing the client.” Id. In order to determine whether the breach of fiduciary duty claim in a case is really a malpractice claim, one should look to the difference between the two causes of action. “A cause of action for legal malpractice arises from an attorney giving a client bad legal advice or otherwise improperly representing the client.” Id. On the other hand, “[t]he essence of a breach of fiduciary duty involves the ‘integrity and fidelity’ of an attorney.” Id. Its focus “is whether an attorney obtained an improper benefit from representing a client, while the focus of a legal malpractice claim is whether an attorney adequately represented a client.” Id.

“A breach of fiduciary duty occurs when an attorney benefits improperly from the attorney-client relationship by, among other things, subordinating his client’s interests to his own, retaining the client’s funds, using the client’s confidences improperly, taking advantage of the client’s trust, engaging in self-dealing, or making misrepresentations.” Id. “Unlike a claim for breach of fiduciary duty, legal malpractice is based on negligence, because such claims arise from an attorney’s alleged failure to exercise ordinary care.” Id. The court noted that the family’s complaints supporting their breach of fiduciary duty and malpractice claims were the exact same. The court held that the family’s allegations challenge “the degree of care, skill, or diligence in performing [the] duty to inform appellants about issues that could arise during the representation of multiple clients and [the lawyers’] duty to communicate with and among the clients [they] represented” and were solely legal malpractice claims. Id. The court, therefore, affirmed the summary judgment on the family’s breach of fiduciary duty claim.

The court then turned to the malpractice claim and held that a plaintiff asserting a malpractice claim must prove damages. This is important because a breach of fiduciary duty claim does not require damages; a plaintiff can seek profit disgorgement or fee forfeiture. Regarding damages, the court held that the family’s release was effective to bar their claim against the umbrella policy and held that the attorneys  were not at fault for that. The family also did not provide evidence that they could avoid the release due to a defense of mistake. The court affirmed the summary judgment on the malpractice claim due to no damages – specifically noting that there may have been malpractice.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

from Texas Bar Today
via Abogado Aly Website

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