As explained below, lawyers owe fiduciary duties to their clients and, in some jurisdictions (such as Illinois), a claim for breach of an attorney's fiduciary duty is held to be the exact same claim as legal malpractice—meaning that a count for breach of fiduciary duty can be stricken in a legal malpractice case.
Meanwhile in other jurisdictions (notably, New York and California), pleading both breach of fiduciary duty and legal malpractice confers a technical but tangible benefit in how the litigation unfolds.
This paper will examine two opposing points of view in case law—on one hand, Illinois case law holding breach of fiduciary duty is duplicative in a legal malpractice claim and, on the other, New York and California case law, both of which confer distinct advantages to adding a breach of fiduciary duty claim to a legal malpractice claim. By providing this overview, we hope to (1) engender more informed conversations between insured attorneys and their Gallagher brokers, and (2) remind ethics counsel and legal malpractice defense counsel of the nuances of this important topic.
Definition of legal malpractice vs. breach of fiduciary duty
Attorneys are fiduciaries to their clients, owing a duty to hold clients' interests above their own.1 Less clear is whether suing an attorney for breach of fiduciary duty is duplicative of a LPL claim when based upon the same essential fact pattern. The answer depends upon the state law being applied.2
Legal malpractice qualifies as professional negligence and falls under the category of tort law. As with any tort, legal malpractice claims require the following elements:
- Establishment of a duty owed (in the case of legal malpractice, this element depends upon the existence of an attorney—client relationship)
- Breach of that duty
- Actual damages that proximately resulted from such breach
In the case of legal malpractice claims, the duty and breach thereof in elements (1) and (2) refer to a professional duty, typically established by expert witness testimony. Case law defines the duty as what one would expect from a reasonable professional of similar level of practice in similar circumstances.3
Fiduciary duty claims rely upon the same elements. In order to prevail on breach of fiduciary duty tort, a plaintiff must similarly prove the following basic tort elements:
- That a fiduciary duty exists
- The fiduciary duty was breached (often due to an existing conflict of interest)
- The breach proximately caused the injury of which the plaintiff complains4
Additionally, case law in various states defines a fiduciary as a person who holds the position of a confidential trustee, characterized by the fiduciary holding superior knowledge, skill or expertise over the counterparty or principal. The fiduciary is therefore in a superior position of potential abuse over the vulnerable party, whose confidence is placed in the fiduciary, and therefore must deal with the more vulnerable party with the utmost good faith.5 In this special relationship of trust and confidence, the interests of the vulnerable party are paramount, to be held above the interests of the fiduciary himself or herself.6 Often an existing conflict of interest serves as one of the defining characteristics of breach of fiduciary duty claims, as opposed to garden—legal malpractice claims.7
The Illinois redundancy rule
In part due to the similarity in the elements to be proven, Illinois courts have held breach of fiduciary duty counts to be duplicative of legal malpractice counts and have allowed defendants to strike the fiduciary duty count on that basis.8 Conflicts of interest are thus to be litigated solely in the legal malpractice count. Illinois case law has come to represent the view that there are no tangible advantages9 in litigation for alleging breach of fiduciary duty concurrently with legal malpractice.
Despite holding that the two counts are duplicative, however, Illinois case law also recognizes the vastly different origins of these two torts. While legal malpractice falls under the category of professional negligence, Illinois case law identifies breach of fiduciary duty as being rooted in principles of agency, contract law and equity.10 Thus, for example, fiduciary duties employ terms such as principal and agent—the principal being the vulnerable party, i.e., the claimant alleging breach of fiduciary duty, and the agent being the superior party, serving in the role of fiduciary.11
The approaches in two "tactical advantage" states
The case law in other states holds that breach of fiduciary duty counts are distinct from legal malpractice claims. We will focus on the case law of just two such states where pleading breach of fiduciary duty has the potential to confer very specific tactical advantages to the litigation of the LPL claim. In both New York and California, the benefit is a relaxing effect upon the claimant's burden of proof. Although somewhat technical in nature, the benefits to pleading in these two states produces a tactical advantage in the civil procedure requirements for the claimant.
A line of New York cases holds that where the claimant is able to establish a fiduciary relationship, this relaxes the causation standard in the legal malpractice case.12 In at least two legal malpractice cases alleging breach of fiduciary duty, the Second Circuit applied New York law to find that proximate cause (sometimes referred to as "but for" causation) was not required.13 Instead, both cases applied the "substantial factor" standard to the claimant's breach of fiduciary duty claims.
In the first case,14 the client terminated its agent who had represented the client in purchasing certain corporate assets in a bankruptcy proceeding. The law firm issued a written opinion agreeing that representing the former agent of the client would constitute a conflict of interest.15 The law firm then committed the very act that it deemed a conflict, representing the former agent in an attempt to use the client's own escrowed funds to attempt to outbid the client. Based upon these facts, the client later sued the law firm for malpractice and breach of fiduciary duty.
The law firm argued there were no damages and no proximate cause, due to the fact that the original client abstained from bidding on the assets in the bankruptcy proceeding. The court found breach of fiduciary duty on the part of the law firm, and held that this breach loosened the requirements of causation and damages. Instead of proximate causation of damages, the court held the breach needed only be a substantial factor in the claimed damages.
In the second case,16 the client lost at arbitration before discovering a conflict of interest on behalf of his law firm. The law firm argued that there was no proximate cause between the conflict of interest and the adverse arbitration ruling. The court, however, held that there was no proximate cause requirement. Instead, it held the law firm had a fiduciary duty, and therefore the substantial factor standard applied. The court reasoned there was at least some evidence that could lead a jury to infer that the conflict caused the loss at arbitration.
Shifting to the substantial factor test in these cases means that the claimant has a lower burden to meet. The causation standard in legal malpractice is typically proximate cause.17 Although the concept requires a more lengthy conversation, the term "proximate cause" typically means the legally sufficient cause to result in liability, or the cause that directly produces an event and without which the event would not have occurred.18 In New York legal malpractice cases, however, establishing breach of fiduciary duty means the claimant need not prove that the attorney's acts were the proximate cause for damages in the legal malpractice claim. Instead, the claimant merely needs to prove that the attorney's acts were one of many substantial factors bringing about damages. Substantial factor in an injury means it has such an effect in bringing about the injury that reasonable persons would regard it as a cause of the injury.19
Importantly, in both New York cases, the courts explicitly cited the preventative or prophylactic nature of the substantial factor standard.
[T]he substantial factor standard—prophylactic in nature—invites a more generous evaluation of plaintiff's claims. Viewed through the lens of a potential conflict of interest, defendants otherwise defensible tactical decisions take on a more troubling gloss, and suggest at least the possibility that defendants divided loyalties substantially contributed to ... defeat ...20
In other words, New York case law applies the relaxed standard in order to prevent attorneys from breaching the fiduciary duty owed to clients.
California courts have similarly recognized a relaxed standard, although they express it differently. Instead of adopting the New York approach of relaxing the proximate cause requirement, California case law shifts the burden of proof in the breach of fiduciary duty claim from the claimant to the fiduciary. Without establishing fiduciary duty, the burden of proof lies solely with the party claiming breach of fiduciary duty and LPL. Once the claimant establishes a fiduciary duty, however, the burden shifts to the defendant, meaning that the court recognizes a presumption of undue influence. The presumption is rebuttable by evidence that the defendant may present.
In Barbara A. v. John G.21, the plaintiff had hired an attorney to represent her in a divorce. During the pendency of the case, the two engaged in ostensibly consensual sex on the explicit representation from the attorney that he was medically unable to make her pregnant.22 Contrary to the attorney's claims, a pregnancy resulted—one that furthermore featured medical complications, required surgery and ultimately rendered the client sterile.
The client's lawsuit against her attorney included a number of counts, including deceit, intentional infliction of emotional distress, legal malpractice, battery, fraudulent misrepresentation and negligent misrepresentation. The client also explicitly argued that the attorney owed her a fiduciary duty that applied to any and all conduct that could benefit the attorney at the client's expense, including the conduct within their personal relations.
The California appellate court agreed with the client, ruling that (1) a fiduciary relationship and a conflict of interest existed between the attorney and his client, and (2) this created a presumption of undue influence. In other words, once the client had met her burden of proving the existence of the fiduciary relationship, the attorney would then have the burden of proving that he did not exert undue influence—in this case, to induce her to engage in sexual relations under false pretenses, resulting in battery along with the other torts the claimant was alleging.23
Similar to the reasoning employed in the New York cases cited above, the California court explicitly cited the need to police the conduct of attorneys in their capacities as fiduciaries in its ruling. The court stated, "The possibility of a factual determination of a confidential [i.e., fiduciary] relationship should be a sufficient warning to monitor the profession in personal or social relations with clients."
The approaches in each of these three states—Illinois, New York and California—support the fundamental notion that attorneys owe fiduciary duties to their clients. Yet the case law in these three states represents two extremes along a spectrum of varying approaches.24 On one extreme, Illinois case law declares the breach of fiduciary duty count to be duplicative of a legal malpractice count.
On the other extreme, courts in New York and California confer considerable weight to breach of fiduciary duty counts in legal malpractice cases. New York case law holds that a relaxed causation standard is applicable to attorney malpractice claims where the plaintiff can establish the existence of a fiduciary relationship. California case law holds that the finding of a fiduciary relationship creates a rebuttable presumption of undue influence, in effect shifting the burden to the attorney accused of breaching his fiduciary duty to the client. Ultimately, defendants should be aware of the advantages a claimant may gain by alleging breach of fiduciary duty in legal malpractice claims. They should conduct independent analysis of the applicable case law to identify whether adding such a claim would present tangible civil procedure advantages in litigation, as described for New York and California above.
By discussing these nuances in the law across this sampling of jurisdictions, our goal is for insured attorneys to have the ability to hold more informed conversations with their Gallagher brokers addressing having the optimal policy language in place. Our discussion above also ideally reminds firm ethics counsel and defense attorneys to remain aware of a claimant's tactics in alleging breach of fiduciary duty claims concurrently with legal malpractice claims.
1Restatement (Third) of the Law Governing Lawyers, §16(3), Comment b. and Reporter's Notes Comment b.
2Restatement (Third) of the Law Governing Lawyers, §49, Comment e. and Reporter's Notes Comment e.
3See generally Nelson v. Quarles & Brady, LLP, 2013 IL App (1st) 123122, 997 N.E.2d 872.
4Ball v. Kotter, 723 F.3d 813, 826 (7th Cir. 2013) (citations omitted); Pippen v. Pedersen, 2013 IL App (1st) 111371, 986 N.E.2d 697.
5Doe v. Terwilliger, No. CV095024692S, 2010 Conn. Super. LEXIS 1597, at *2-4 (Super. Ct. June 8, 2010); United States v. Fotiades-Alexander, 331 F. Supp. 2d 350, 353 (E.D. Pa. 2004); Gilman v. Dalby, 176 Cal. App. 4th 606, 98 Cal. Rptr. 3d 231 (2009).
6Amato v. Greenquist, 287 Ill. App. 3d 921, 679 N.E.2d 446 (1st Dist. 1997); AHA Sales, Inc. v. Creative Bath Products, Inc., 2008 NY Slip Op 8684, 58 A.D.3d 6, 867 N.Y.S.2d 169 (App. Div.); Barbara A. v. John G., 145 Cal. App. 3d 369, 383, 193 Cal. Rptr. 422, 431 (1983). See Restatement (Third) of Agency, §8.01, Comment b.
7For example, conflicts of interest are the critical element of breach of fiduciary duty claims (1) in certain ERISA litigation, In re Morgan Stanley Erisa Litigation, 696 F. Supp. 2d 345 (S.D.N.Y. 2009), and (2) in certain D&O claims, as discussed at http://www.newyorklegalethics.com/legal-malpractice-breach-of-fiduciary-duty-part-ii/.
8See the line of Illinois case law starting w ith Majumdar v. Lurie, 274 Ill. App. 3d 267, 653 N.E.2d 915 (1st Dist. 1995).
9Meaning there are no civil procedure advantages to litigating the legal malpractice case where the claimant is able to first establish breach of fiduciary duty. Compare New York and California case law below.
10Pippen v. Pedersen, 2013 IL App (1st) 111371, 986 N.E.2d 697.
11Restatement (Third) of Agency, §8.01, Comment b.
12See item no. 3 the list of elements set forth above.
13Estate of Re by Coarsely v. Kornstein, 958 F. Supp. 907 (S.D.N.Y. 1997); Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537 (2d Cir. 1994); Ciocca v. Neff, 2005 U.S. Dist. LEXIS 12222 (S.D.N.Y. June 20, 2005); Metropolitan Plaza WP, LLC v. Goetz Fitzpatrick, LLP, 2010 NY Slip Op 32389(U) (Sup. Ct.); Macnish-Lenox, LLC v. Simpson, 2007 NY Slip Op 52055(U), 17 Misc. 3d 1118(A), 851 N.Y.S.2d 64 (Sup. Ct.). But see Gurvey v. Cowan, 2017 U.S. Dist. LEXIS 104816 (S.D.N.Y. July 6, 2017), which summarily denies that this line of cases stands for these propositions.
14Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537 (2d Cir. 1994).
15At least one commentator points out that conflict of interest / breach of fiduciary duty cases require the claimant to prove disclosure of confidential information. In other words, because it would be untenable to disclose still-confidential information in such a proceeding, New York case law grants the claimant a burden in breach of fiduciary duty cases. See http://www.newyorklegalethics.com/legal-malpractice-breach-of-fiduciary-duty-part-ii/.
16Estate of Re by Coarsely v. Kornstein, 958 F. Supp. 907 (S.D.N.Y. 1997).
17See note 3, above.
18Melnick v. Consolidated Edison, Inc., 2013 NY Slip Op 23050, 11, 39 Misc. 3d 800, 813-14, 959 N.Y.S.2d 609 (Sup. Ct.).
19Acerra v. Trippardella, 34 A.D.2d 927, 928, 311 N.Y.S.2d 522, 525 (App. Div. 1970); Gilliam v. City of New York, 2016 NY Slip Op 32070§.
20Estate of Re by Coarsely v. Kornstein, 958 F. Supp. at 927-928.
21See Barbara A. v. John G., 145 Cal. App. 3d 369, 93 Cal. Rptr. 422 (1983) and the line of California state cases cited therein.
22Published in 1983, this opinion preceded the ethical rules prohibiting sexual relations between attorney and client, unless the two are married or the sexual relationship predates the attorney-client relationship. California adopted this rule in 2018. See Cal. Rules of Prof'l Conduct, Rule 1.8.10, approved by order of the Supreme Court filed September 26, 2018, effective November 1, 2018.
23This case presents a unique set of facts, but it nevertheless contains key elements of conflict of interest resulting in breach of fiduciary duty. It serves as just one example of the approach to breach of fiduciary duty taken by California case law in the context of legal malpractice claims.
24Each state's case law should be examined individually; we find a number of distinct approaches to this question in the case law of various states.