Professional Liability

Further, the court in the cited case observed that misrepresentations and material omissions by the lawyer can be actionable as either actual or constructive fraud. The court, in the cited case, held:

The facts of any case need a close analysis, especially where legal malpractice and breach of fiduciary duty causes of action are intended to be and are asserted, because more often than not, one case consists of several subsets of facts, each of which implicates a different cause of action. A lawyer can be charged with unethical conduct when acting out of a conflict of interest, whether it is representing multiple clients with competing interests or overriding the client’s interests with one’s own interests. The same lawyer serving the same client can also draft contract documents incompetently or give bad legal advice in the form of a written or oral opinion upon which the client relied, resulting in an economic loss.

New York Federal Cases

Several New York federal cases have held that at common law, a lawyer can be liable for damages for breach of fiduciary duty, without the plaintiff having to prove the stringent causation requirement of a legal malpractice cause of action. In Milbank, Tweed, Hadley & McCloy v. Boon,⁴ the law firm had represented an agent for a disclosed principal in a large corporate purchase transaction. When the principal fired the agent upon suspicion of disloyalty, the law firm then continued to represent the agent, who became a competing purchaser in connection with the same transaction, eventually thwarting a large part of the transaction for the principal (the original client). When the law firm ultimately sued the former agent for unpaid fees, the agent filed a third-party claim against the principal for indemnification, resulting in the principal filing a claim against the law firm for breach of fiduciary duty. The jury found for the principal, awarding a verdict of $2 million against the law firm for breach of fiduciary duty owed to the principal.

In affirming the verdict, the U.S. court of Appeals for the Second Circuit pointed out that due to the serious breach of fiduciary duty, the original client did not have to show strict “but for” causation or proximate cause. The client-plaintiff only had to show that the law firm’s representation of the former agent was “at least a substantial factor” in preventing her from carrying out the transaction. The law firm “cannot enjoy impunity by showing that [the original client's] losses might have resulted from other possible causes.”⁵

Difference in Claims

The difference between a traditional malpractice claim and a claim for breach of fiduciary duty in the cited federal case was dramatically emphasized in Estate of Re v. Kornstein, Veisz and Wexler.⁶ In this case, the lawyers had represented Mr. Re in an arbitration proceeding resulting from his dismissal as a partner from the investment banking firm Bear Stearns. After the client lost that arbitration, he sued the lawyers on a number of theories, including malpractice and breach of fiduciary duty, all based upon an alleged series of errors relating to the lawyers’ various tactical decisions made in the course of the arbitration proceeding.

After reviewing the alleged errors, the court concluded that none of the alleged errors would support a legal malpractice claim, as in each instance the lawyers had merely made one of a number of reasonable strategic choices. Plaintiff could not prove causation, i.e., he would have won the underlying case. He could not prove that the arbitrators would have ruled any differently if the lawyers had pursued different tactics. The critical element of proof was missing.

Nevertheless, the court denied summary judgment to the lawyers because the complaint raised genuine issues of material fact as to the plaintiff’s breach of fiduciary duty claim, based upon the conflict of interest allegations. The lawyers’ firm was a spin-off of a prominent law firm that represented Bear Stearns and the lawyers derived a sizable dollar amount of income from referrals from their former firm, with which they had an ongoing relationship. This possibility of a conflict was sufficient to defeat summary judgment. The court held: