ATTORNEYS AS DEFENDANTS

MURRAY FOGLER Beck, Redden & Secrest, LLP One Houston Center 1221 McKinney, Suite 4500 Houston, Texas 77010

State of Texas FIDUCIARY LITIGATION: BEYOND THE BASICS COURSE December 1-2, 2011 San Antonio

CHAPTER 11

MURRAY FOGLER Beck, Redden & Secrest, LLP One Houston Center 1221 McKinney, Suite 4500 Houston, Texas 77010-2010 713.951.6235 (Direct) 713.951.3700 (Main) 713.951.3720 (Fax) [email protected]

BIOGRAPHICAL INFORMATION

Partner: Beck, Redden & Secrest, LLP

Formerly: McDade Fogler LLP – 1992 to 2007 (Partner) Fulbright & Jaworski, L.L.P. – 1978 to 1991 (Partner 1986-1991)

Education: University of North Carolina – B.A., 1975 Harvard School – J.D., 1978

Licensed: All Texas State United States Courts of Appeals for the Fourth, Fifth, Eleventh, District of Columbia, and Federal Circuits United States District Courts for the Southern, Eastern, and Northern Districts of Texas

Professional Activities:

Member: State Bar of Texas

Fellow: International Academy of American College of Trial Lawyers International Society of American Bar Foundation (Life Fellow) Texas Bar Foundation (Life Fellow) Houston Bar Foundation (Life Fellow)

Advocate: American Board of Trial Advocates

Attorneys As Fiduciary Defendants Chapter 11

TABLE OF CONTENTS

ADVANTAGES OF A FIDUCIARY CLAIM ...... 1 1. of Limitations ...... 1 2. Pattern Charge ...... 1 3. Experts ...... 2 4. Remedies ...... 2

THE ANTI-FRACTURING RULE ...... 2

THE SCOPE OF THE FIDUCIARY DUTY ...... 2

THE DUTY OF HONESTY AND FULL DISCLOSURE ...... 3

THE DUTY OF LOYALTY: CONFLICTS AND MISUSE OF CONFIDENTIAL INFORMATION ...... 4

SELF-DEALING ...... 5

CONCLUSION ...... 6

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Attorneys As Fiduciary Defendants Chapter 11

ATTORNEYS AS FIDUCIARY a. the transactions in question were fair and equitable to the Client; DEFENDANTS b. Attorney made reasonable use of the

confidence that the Client placed in him; We all know attorneys have fiduciary duties to c. Attorney acted in the utmost good faith and their clients. That‟s a given. It follows, of course, exercised the most scrupulous honesty that clients have a claim against their attorneys who toward the Client; breach those fiduciary duties. d. Attorney placed the interests of the Client If only it were that simple. before his own, did not use the advantage of What I hope to do in this article is explore some his position to gain any benefit for himself at of the frequent issues that arise in asserting and the expense of the Client, and did not place defending fiduciary claims against attorneys. Along himself in any position where his self- the way, my own ideas will creep into the analysis. interest might conflict with his obligations This will not be an exhaustive review of all the as a fiduciary; and Texas cases on the subject—that would take a treatise. e. Attorney fully and fairly disclosed all I won‟t even attempt a thorough review of all the important information to the Client recent cases. There are still too many of them. I will concerning the transactions in question. merely highlight recent cases that illustrate a particular point. As in any developing area of law, You can see why my law partner David Gunn there are muddled issues, where courts have taken calls this the Mother Teresa instruction. What inconsistent positions. is pure as the driven snow? So, let‟s begin. Note that the PJC question switches the burden of

proof. The client does not have to prove the attorney ADVANTAGES OF A FIDUCIARY CLAIM breached his fiduciary duty; instead, the attorney must There are many reasons why an aggrieved client prove he complied with it. Whether this is a real might want to characterize a claim as a breach of advantage or merely a perceived one, it cannot help fiduciary duty rather than negligence. Choosing such but tantalize. I understand the latest PJC edition a characterization, though, is no guarantee of success, offers a version of the question with the burden shifted because, as the next section discusses, courts have to the plaintiff, but that doesn‟t solve the real problem. been rather hostile to efforts by plaintiffs to shoehorn As a lawyer, I hate this PJC instruction. a professional malpractice claim into the fiduciary It never seems to fit claims against attorneys, which is category. Nevertheless, there are many advantages to not surprising, since it is not tailored to an attorney- doing so. client relationship. Unless you can get the trial

to stray from the language of the PJC—never an easy 1. Statute of Limitations task—it mashes together several types of claims (self- The limitations period for legal negligence claims dealing, misrepresentation, failure to disclose, and is two years. Apex Towing Co. v. Tolin, 41 S.W.3d unfairness) into a one-size-fits-all instruction. 118, 120 (Tex. 2001). For breach of fiduciary duty, it Good plaintiffs‟ lawyers can always find some is four. TEX. CIV. PRAC. & REM. CODE § 16.004. failure to disclose or some conduct that makes it That simple difference drives a number of late-filing appear the attorney is looking out more for his fee plaintiffs to call claims against their attorneys breach than for his client‟s interest. It is damn near of fiduciary duty. It rarely succeeds. impossible to win a defense with this question

and instruction. The trick for plaintiffs‟ lawyers is 2. Pattern Jury Charge surviving a summary . A professional malpractice claim draws the As long as our trial are wedded to the standard negligence jury instructions. What an PJC, it is high time to craft a separate fiduciary ordinary prudent attorney would do under the same or compliance jury question and instruction for the similar circumstances, and all that. But a breach of attorney-client situation and make it part of the PJC. fiduciary duty claim will likely get you the PJC It should provide the trial judge with a menu of question and instruction on breach of fiduciary duty. options to select those that apply to the specific case at And that is a horse of a different color. Here it is: issue and omit the rest. And, there should be strong

consideration given to re-setting the burden of proof Did Attorney comply with his fiduciary in these cases back on the client (especially in cases duties to the Client? other than self-dealing), rather than the lawyer. Just

my two cents. Attorney owes his Client a fiduciary duty. To prove he complied with his duty, Attorney must show: 1 Attorneys As Fiduciary Defendants Chapter 11

3. Experts claim focuses on whether the lawyer obtained an As a general rule, expert testimony is necessary improper benefit for himself. to prove a malpractice claim. Alexander v. Turtur & Numerous courts of appeals in Texas have Assoc., Inc., 146 S.W.3d 113 (Tex. 2004); Hall v. prohibited the fracturing of a legal malpractice claim Rutherford, 911 S.W.2d 422 (Tex. App.—San into multiple causes of action “[i]f the essence of the [] Antonio 1995, writ denied). The standard of care and complaint is that the attorney did not exercise the the consequences of a failure to meet the standard are degree of care, skill or diligence that attorneys of typically beyond the ken of the average juror. ordinary skill and knowledge commonly possess ….” It‟s easy, as noted defense lawyer Rod Phelan Deutsch v. Hoover, Bax, & Slovacek, L.L.P., 97 says, to get an expert to describe attorney conduct in S.W.3d 179, 189 (Tex. App.—Houston [14th Dist.] words calculated to incite, such as, “this is why 2002, no pet.); Goffney v. Rabson, 56 S.W.3d 186, lawyers are so widely disliked,” or “he is a cancer on 188-194 (Tex. App.—Houston [1st Dist.] 2001, pet. our profession.” But the kind of conduct that gives denied); and Rangel v. Lapin, 177 S.W.3d 17, 24 rise to a breach of fiduciary duty—failure to disclose (Tex. App.—Houston [14th Dist.] 2005, pet. denied). material information or taking the clients‟ property— In other words, if the complaint is malpractice, a can be so obvious that no expert is required. Whether plaintiff may not, as alternatives, allege other causes a plaintiff‟s lawyer treats that as an advantage may of action, including breach of fiduciary duty or fraud. depend on the particular case. This is commonly called the “anti-fracturing rule.” A good example of the use of this rule is Kimleco 4. Remedies Petroleum v. Morrison & Shelton, 91 S.W.3d 921 A breach of fiduciary duty triggers equitable (Tex. App.—Fort Worth 2002, pet. denied). The remedies, in addition to actual damages. Of principal attorney-defendant represented the client in a , interest for clients suing lawyers is fee disgorgement, which did not go well for the client. More than two made famous in Burrow v. Arce, 997 S.W.2d 229 years after the suit had concluded, the client sued the (Tex. 1999). Fee disgorgement is available even in attorney for designating an unqualified expert in the the absence of actual damages. In Burrow, for earlier suit. The client asserted that his claims against instance, it was acknowledged that the lawyers had the attorney were more in the nature of a breach of done a bang-up job for their clients, but the issue was fiduciary duty, so as to get the benefit of a four-year whether the lawyers should get to keep their statute of limitations. handsome fees. This is a corollary to the age-old rule The of appeals held the crux of the that in the event of a breach of fiduciary duty, even in allegation was that the lawyer failed to provide the absence of damages, the fiduciary must forfeit his adequate representation, hence, the claim was for legal benefit to his beneficiary. Kinzbach Tool v. Corbett- malpractice. The client lost, on grounds of Wallace, 160 S.W.2d 509 (Tex. 1943). limitations. Fee disgorgement is discretionary in the hands of As I said, there are lots of court of appeals cases the trial judge, who must consider several factors set that discuss and apply the anti-fracturing rule. out by the Texas Supreme Court in Burrow. The court (Curiously, our Supreme Court has never written on can require disgorgement of all, part, or none of a fee. this issue.) The rule seems facially sensible for As another equitable remedy, if the claim situations where the client tries to circumvent the two- involves a lawyer who has taken client property, a year statute of limitations for negligence by alleging constructive trust is available. breach of fiduciary duty. The courts have not, though, In an appropriate case, exemplary damages may been entirely consistent in how they characterize be awarded for breach of fiduciary duty. See, e.g., breach of fiduciary claims, so let‟s examine how they Bright v. Addison, 171 S.W.3d 588, 603-05 (Tex. have treated the scope of the duty and its application App.—Dallas 2005, pet. denied). in particular cases.

THE ANTI-FRACTURING RULE THE SCOPE OF THE FIDUCIARY DUTY Given the advantages of a breach of fiduciary Considering that the fiduciary duty between duty claim, it is not surprising, then, for plaintiffs to attorney and client arises out of the attorney-client plead this claim as an alternative to the standard relationship, it logically follows that a non-client’s malpractice claim. But the two claims are different, effort to pin liability on an attorney is difficult if not and a plaintiff will not be permitted to use the same impossible. But that does not stop claims from being set of facts to support both claims. A malpractice made. claim focuses on whether the lawyer adequately Even though a non-client (such as the opposing represented the client, while a breach of fiduciary party in a lawsuit or transaction) has no direct claim against the opposing lawyer for breach of fiduciary

2 Attorneys As Fiduciary Defendants Chapter 11 duty, he might try to claim that the opposing lawyer purposes. This principle is illustrated by Joe v. Two participated in his own client‟s breach of fiduciary Thirty Nine Joint Venture, 145 S.W.3d 150 (Tex. duty. The claim could be couched in terms of 2004). conspiracy or aiding and abetting. These are tough Joe was a shareholder in Jenkens & Gilchrist, but claims to make. Take, for example, the case of Chu v. he was also a city councilman in Irving, Texas. When Hong, 249 S.W.3d 441 (Tex. 2008). It arose out of a the Irving City Council took action that caused harm divorce case. to 239 JV, a client of Jenkens, the client sued the firm. In Chu, the former wife sued her former husband The client claimed that Joe‟s role in leading the city and his lawyer for conspiring to fraudulently transfer council to take its action created a conflict for community assets. The wife won a judgment against Jenkens. The Supreme Court held that Joe enjoyed the lawyer in the trial court and the court of appeals, legislative immunity from suit for his action. It also but the Supreme Court reversed and rendered. The held the law firm could not be liable to the client Supreme Court held there was no for converting because disclosing the anticipated conduct of the city community property. It could have stopped its council was beyond the scope of the firm‟s analysis there, but it went on to express a reluctance to representation. extend liability to the opposing lawyer. The lawyer‟s It‟s time to turn our attention to the more specific duty was to his own client. Extending a duty in favor aspects of the duty. of the opposing party in a transaction would create conflicts with the duty to his client. THE DUTY OF HONESTY AND FULL So, a party cannot sue his opponent‟s lawyer for DISCLOSURE aiding and abetting a breach of fiduciary duty for A law review article has been making the rounds giving advice to his client. Alpert v. Crain, Caton & among trial lawyers, strange as that may seem. It‟s James, P.C., 178 S.W.3d 398, 407 (Tex. App.— called Honesty is the Best Policy: It’s Time to Houston [1st Dist.] 2005, pet. denied). In fact, I Disclose Lack of Jury Trial Experience, 23 haven‟t seen a case involving opposing parties in a Georgetown J. of Legal Ethics 155 (2010). The gist litigation context in which a party has successfully of article is that lawyers commit a breach of ethical sued the opposing lawyer. But be careful about non- duties to their clients if they fail to disclose (or worse, litigation transactions—courts have occasionally misrepresent) a lack of jury trial experience. The permitted claims that the lawyer conspired with the article is more popular with seasoned trial lawyers. client to defraud the adverse party. See, e.g., Likover Could a failure to disclose lack of jury trial v. Sunflower Terrace, II, Ltd., 696 S.W.2d 468 (Tex. experience lead to a claim of breach of fiduciary duty App.—Houston [1st Dist.] 1985, no writ). against the lawyer? Probably not. “Texas Sometimes the situation occurs where an attorney courts…have recognized that a complaint that a who previously represented one client is now lawyer „misrepresented‟ his competence to provide representing another client, whose interest is adverse legal services or „failed to disclose‟ his incompetence to the first. If the matters are not substantially related, implicates only the lawyer's duty of ordinary care and or if a waiver letter is obtained, the new representation is not independently actionable as a fiduciary duty, may be permitted. In that situation, the former client DTPA, or other tort claim.” Beck v. Law Offices of might have a claim against the lawyer if the lawyer Edwin J. (Ted) Terry, Jr., P.C., 284 S.W.3d 416, 431- uses that former client‟s confidential information 32 (Tex. App. —Austin 2009, no pet.). (which I will discuss below in connection with Brown The Beck case presents a rather extreme example. v. Green, 302 S.W.3d 1 (Tex. App.—Houston [14th The client alleged that his lawyer in a divorce case Dist.] 2009, no pet.)), but the former client won‟t have suffered from alcoholism and substance abuse, which a claim if the lawyer refuses to disclose information was not disclosed. These impairments purportedly led learned from his new client. See Rawhide Mesa- to unsatisfactory results for the client. The client went Partners v. Brown McCarroll, 2011 WL 1744089 further—he argued that even if the undisclosed (Tex. App.—Eastland 2011, n.p.h.)(law firm condition had no impact on the quality of legal representing tenant had previously represented a services, he could still obtain fee forfeiture for the partner of the landlord on a personal matter; held, law non-disclosure. The court of appeals called this “an firm had no duty to disclose to landlord the tenant‟s end run around the breach and causation elements of a intent to file ). professional negligence claim….” Id. at 433. The Bottom line, then, the fiduciary duty claim works court‟s comments are interesting: only against the client‟s own lawyer. But even that duty has limits. A lawyer‟s duty to put his client‟s Although appellants emphasize the interest ahead of his own applies only to dealings sensational nature of their allegations about within the scope of their relationship, not for all alcohol or drug use, their complaint is

3 Attorneys As Fiduciary Defendants Chapter 11

analogous to an assertion that a lawyer was usually not damaging to the client‟s pocketbook, so afflicted by any of the myriad, more the claims would die anyway for lack of causation or innocuous physiological factors that might damages. adversely affect a lawyer‟s practice performance on a given day—e.g., illness, THE DUTY OF LOYALTY: CONFLICTS AND sleep deprivation, emotion, or simply a lack MISUSE OF CONFIDENTIAL INFORMATION of innate intelligence or ability—or, for that Clients demand loyalty from their lawyers. And matter, by such non-physiological practice nothing gets a lawyer in trouble faster than conflicts. impediments as a malfunctioning office But, as we will see, it is also hard to make a conflicts printer or absent secretary. claim stick, at least in the form of a breach of fiduciary duty. Id. at 432. All of these conditions go to the lawyer‟s Let‟s examine a couple of cases where the clients competence and to the quality of legal services, which claimed a conflict arose during the lawyer‟s give rise solely to a negligence claim. representation of the client (as opposed to afterwards). The Beck case puts a huge roadblock in the way In Won Pak v. Harris, 313 S.W.3d 454 (Tex. App.— of suing a lawyer for breach of fiduciary duty for a Dallas 2010, pet. denied), the lawyer represented six failure to disclose, at least if the disclosure relates at individuals in the formation of a limited . all to the lawyer‟s ability or the quality of his services. Soon after the partnership was formed, three of the What if the non-disclosure relates to something else, clients voted to exclude the other three. (Beware such as the status of the case? Consider Trousdale v. representation of multiple clients.) The excluded Henry, 261 S.W.3d 221 (Tex. App.—Houston [14th three sued the lawyer, alleging he had “divided Dist.] 2008, pet. denied), where the lawyer was loyalties,” as demonstrated (so they said) by the accused of failing to tell the client her case was lawyer‟s receipt of an email from one client he had dismissed for want of prosecution. The client did not not shared with the others. discover the dismissal until more than two years had These allegations were insufficient to survive the passed. anti-fracturing rule. “At the heart of appellants‟ By a 2-1 decision, the court of appeals in complaint is Harris‟s alleged failure to provide Trousdale held the client had properly alleged a adequate legal representation by his failure to properly breach of fiduciary duty claim. The court appeared to inform, advise, and communicate with them.” Id. at be influenced by the fact that the lawyer continued to 458. The court specifically rejected the position that a accept fees after the dismissal and refused to turn over would necessarily give rise to a the client‟s file, which contributed to her inability to breach of fiduciary duty claim. To add insult to discover the dismissal. No doubt the court was also injury, the remaining negligence claim was held to be concerned that the client‟s negligence claim might be barred by limitations. time-barred. The dissent felt the breach of fiduciary The Won Pak opinion relied heavily on another claim, which arose out of the same facts as the Dallas court of appeals case, Murphy v. Gruber, 241 negligence claim, was simply a device to avoid the S.W.3d 689 (Tex. App.—Dallas 2007, pet. denied), limitations bar. which presents a very similar situation. These clients Trousdale reached the right result, but for the also alleged the lawyers developed a conflict in the wrong reason. The discovery rule applies to legal midst of the representation and failed to disclose it. malpractice actions. Willis v. Maverick, 760 S.W.2d The Murphy court presents a fulsome review of Texas 642, 646 (Tex. 1988). So does the doctrine of cases on the issue of whether a conflict-of-interest fraudulent concealment. McClung v. Johnson, 620 gives rise to a breach of fiduciary duty. Though some S.W.2d 644, 647 (Tex. App.—Dallas 1991, writ courts reached different results, the Murphy court ref.n.r.e.) (“[B]reach of the duty [to disclose] is found that most often courts concluded the claims tantamount to concealment.”). To be consistent with were really negligence not breach of fiduciary duty the anti-fracturing rule, the court in Trousdale should claims. Id. at 696. The clients lost again. have affirmed the summary judgment dismissing the Courts are more sensitive to client complaints breach of fiduciary duty claim, but reversed as to that their former lawyer has used or might use the negligence, because the lawyer‟s failure to disclose client‟s confidential information against him. For and active concealment of the status of the case should instance, in Perez v. Kirk & Carrigan, 822 S.W.2d have tolled the limitations period. 261 (Tex. App.—Corpus Christi 1991, pet. denied), a None of the cases discussed so far present a truck driver involved in a fatal school bus accident successful claim against a lawyer for breach of gave a statement to lawyers investigating the case. fiduciary duty. I surmise that failures to disclose, The truck driver claimed the lawyers told him they while damaging to the attorney-client relationship, are would represent him personally in litigation arising

4 Attorneys As Fiduciary Defendants Chapter 11 out of the accident and would maintain his statement The decision appears to assume, without in confidence, but the lawyers were acting for his discussion at all, that Elizondo had stated a claim for employer and later gave the truck driver‟s statement to breach of fiduciary duty. Had there been any truth to the district attorney. The court held the circumstances the allegation that lawyer undersold Elizondo‟s claim implied the creation of an attorney client relationship in order to sign on representing BP, the claim might with the truck driver, giving rise to a duty on the have survived summary judgment, but the court never lawyers‟ part to preserve the client‟s confidential reached the issue. Instead, Elizondo‟s claims were information. A summary judgment for the lawyers on tossed for lack of on damages. And, since the breach of fiduciary duty claim was reversed. Krist had not charged a fee, there was nothing to Another example is Kennedy v. Gulf Coast forfeit. The court refused to grant forfeiture of Krist‟s Cancer & Diagnostic Center, 326 S.W.3d 352 (Tex. fee for representing BP. App.—Houston [1st Dist.] 2010, no pet.). Kennedy At the beginning of this paper I bemoaned how was a former in-house attorney for Gulf Coast. After easy it is for a client to get a favorable verdict on a he left the , he kept and threatened to breach of fiduciary duty question. But most of the disclose a concerning Gulf Coast‟s cases I have discussed never got that far. Are courts liability for a former ‟s misconduct. Gulf too eager to protect lawyers? Before we draw that Coast obtained an injunction against the threatened conclusion, there is one more category of claims we disclosure. “An attorney who uses a client‟s need to examine—self-dealing claims. It‟s one thing confidential information for his own interest and for a lawyer to be less than honest with his client, or against the client‟s interest to the client‟s detriment be less than loyal—we‟ve seen lawyers in those cases may be liable for breach of fiduciary duty.” Id. at avoiding any fiduciary liability. But the real money 360. comes with claims that a lawyer took what wasn‟t his In a suit for damages, however, the mere threat to take. Those are the juicy ones. that a client‟s confidential information might be misused will not be enough. There must be proof of SELF-DEALING actual misuse to give rise to a claim. That is the I have already mentioned Burrow v. Arce, the teaching of Brown v. Green, 302 S.W.3d 1 (Tex. most important Texas breach of fiduciary duty case App.—Houston [14th Dist.] 2009, no pet.). There, the involving lawyers. The case arose out of a large lawyer had represented Brown for 12 years, but a few settlement of a mass tort case. The clients did not years after that representation had terminated, the dispute they received substantial checks as part of the lawyers represented Brown‟s wife in divorce deal, but they complained the lawyers had settled their proceedings and other matters against Brown. Brown claims as a group without explaining to each of them claimed that the lawyer was using confidential how the pie would be divided and without obtaining information gained from his prior representation their individual consents to the division. The Supreme against him. Distinguishing a damages claim from a Court held actual damages need not accompany a disqualification issue (where sharing of a former breach of fiduciary duty, and it set out the procedure client‟s confidential information might be imputed or and standards for fee forfeiture as an alternative, inferred), the court held there must be evidence of equitable remedy. actual disclosure or misuse. Brown lost his fiduciary Not surprisingly, fees and expenses provide a claim on that basis, and then lost his malpractice claim fertile ground for disagreements between lawyers and because the lawyer no longer represented him. clients. If a lawyer takes an improper benefit for Switching sides and taking up representation of a himself, he sets himself up for a breach of fiduciary party adverse to a former client may be a lightning rod duty claim. See, e.g., Burnett v. Sharp, 328 S.W.3d for claims, but it is still hard for the client to prevail. 594 (Tex. App.—Houston [14th Dist.] 2010, n.p.h.) Let‟s look at one more of these type of cases, Elizondo (reversing a dismissal of a pro se petition alleging the v. Krist, 338 S.W.3d 17 (Tex. App.—Houston [14th lawyer refused to return an unearned retainer after Dist.] 2010, pet. pending). Elizondo worked at the BP being replaced). refinery in Texas City and was injured in an explosion A classic, though egregious, example of a in 2005. He hired Krist to represent him, and then fiduciary breach is Piro v. Sarofim, 2002 WL 538741 agreed to accept $50,000 to settle his claim. Krist did (Tex. App.—Houston [1st Dist.] 2002, n.p.h.). The not take a fee. A couple of years later, BP hired Krist case arises out of a high profile divorce, in which the to assist in handling other claims arising out the lawyers for the wife took a substantial contingent fee, explosion. Elizondo alleged he had been “sold down apparently after starting the representation on an the river” by Krist and that his claim was worth hourly basis. substantially more than he had received. The jury in Piro had no trouble finding the lawyers had breached their fiduciary duties and

5 Attorneys As Fiduciary Defendants Chapter 11 awarded $3 million in actual damages, presumably the collect an unconscionable fee, for another. Id. at 867. amount of the excessive fee. In addition, the trial Words to live by. court alternatively ordered fee forfeiture in that same A lawyer who goes into business with, or (even amount. The court‟s findings of fact, which are worse) against, a client is asking for trouble. Even if appended to the court of appeals‟ decision, are eye- the lawyer wears a business hat, he cannot escape the popping. The client was impaired by alcohol and fiduciary duty imposed by the lawyer hat. Bright v. prescription drug abuse, had become romantically Addison, 171 S.W.3d 588 (Tex. App.—Dallas 2005, involved with one of the lawyers, and did not have pet. denied) (lawyer claimed he was not acting as a separate representation in negotiating the change in lawyer but as a businessman, but the court held to the the fee arrangement. The trial court obviously felt the contrary). In Bright, when the lawyer failed to tell his lawyers had taken advantage of the client in a repeated business associates about a corporate opportunity and and willful manner. The court of appeals agreed. took it for himself, the lawyer got hit for actual and On the other hand, a case that ought to provide exemplary damages, plus the imposition of a some comfort to lawyers, especially hourly billers, is constructive trust on assets that rightfully belonged to McGuire, Craddock v. Transcontinental Realty, 251 the business associates. The usurpation of the S.W.3d 890 (Tex. App.—Dallas 2008, pet. denied). opportunity was treated as an intentional breach of the That case began as a suit by the lawyers for recovery lawyer‟s fiduciary duty. See also, Kormanik v. of unpaid fees. The suit drew the inevitable Seghers, 2011 WL 2322369 (Tex. App.—Houston counterclaims for mishandling and overcharging. The [14th Dist.] 2011, n.p.h.) (agreement between lawyers client complained that the lawyers had significantly and client for a marketing plan to promote African art exceeded the litigation budget and had raised their treated as attorney-client relationship resulting in rates without notice. The budget had indeed been breach of fiduciary duty). exceeded, but the budget was not part of the fee Unlike dishonesty and disloyalty, taking a agreement and did not bind the parties. There was client‟s property typically presents measurable evidence the client had been told about the raise in damages that directly result from breach of the hourly rates. The jury found no breach of fiduciary lawyer‟s fiduciary duty. Those claims have a better duty and no breach of , but the trial court chance of getting to a jury and far better chance of entered a judgment NOV against the lawyers. On tangible success. appeal, the court of appeals reversed and reinstated an award of fees for the lawyers. CONCLUSION The best insurance against client disgruntlement These are the lessons we can learn from this over fees and expenses is an explicit fee agreement sampling of recent : that sets out exactly what the lawyer will charge. That is no guarantee against suit, of course, but it will go a 1. If a client has a claim against you, hope that long way to protecting the lawyer. Lopez v. Munoz, more than two years pass before it is Hockema & Reed, LLP, 22 S.W.3d 857 (Tex. 2000). asserted, because the anti-fracturing rule has The fee agreement in Lopez assigned 40% of any not been kind to four-year claims like breach recovery to the lawyers, and 45% if the case “is of fiduciary duty. appealed to a higher court.” After a large judgment, 2. If you make a mistake as a lawyer, best to the parties had tentatively negotiated a settlement, but tell the client promptly, else you risk adding to preserve a right to appeal in case the settlement fell a fiduciary breach claim to the client‟s through, the defendant perfected an appeal. The complaint for failure to disclose. attorneys claimed a 45% fee. The clients argued that 3. Avoid suing your former clients, or even taking the extra 5% was not only a breach of the representing your former client‟s contract, it also constituted a breach of fiduciary duty. adversaries. A waiver letter will help, but The Supreme Court held the fee agreement was might not prevent a claim. clear; the lawyers had the right to the additional 5% 4. If you represent multiple clients in the same upon the posting of the cash bond. Because the matter, best to get a waiver letter from all of contract allowed the fee, there could be no breach of them. But you still might get sued if fiduciary duty claim. Two thought the conflicts arise among the clients. contract was ambiguous, and they gratuitously added 5. Spell out your fee arrangement clearly, in a section to their dissent to discuss two ethical issues writing, and explain it fully to the client. not raised by the clients. Lawyers should fully and 6. Don‟t do business with or compete against honestly inform their clients about the fee your client. arrangement, for one, and they have a duty not to

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If you follow these simple instructions, you probably won‟t be found liable for breach of fiduciary duty.

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