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Breach of Fiduciary

The second most common legal theory brought against attorneys by their clients, after negligence, is breach of fiduciary duty. The two theories are not mutually exclusive and an attorney may be liable in both negligence and breach of fiduciary duty.

A lawyer is a fiduciary to his client, with duties of loyalty, confidentiality, and obedience. In re Estate of Shano, 177 Ariz. 550, 557, 869 P.2d 1203, 1210 (App.1993). The attorney “is bound to discharge his duties to his client with strictest fidelity and to observe the highest and utmost good faith.” Talbot v. Schroeder, 13 Ariz.App. 230, 231, 475 P.2d 520, 521 (App. 1970).

An attorney’s fiduciary obligations create a “standard of conduct,” which is analagous to the “standard of care” for negligence.

The breach of fiduciary duty claim is nicely summarized in Revised Arizona Jury Instruction (4th) Commercial Torts 1C, which states: “(The defendant) is an attorney. Attorneys owe a special duty to their clients, which is called a fiduciary duty. This duty requires attorneys to represent clients (footnote omitted) with strictest loyalty and act with the highest and utmost good faith. (The plaintiff) claims that (the defendant) breached this fiduciary duty. To establish this claim, (the plaintiff) must prove:

  1. (the defendant) breached this duty;
  2. (the defendant)’s breach was a cause of (the plaintiff)’s damages; and
  3. (the plaintiff)’s damages.”

Historically, the most common areas where breach of fiduciary duty claims arise are: 1) sexual relations with the client; 2) doing a business deal with the client; and 3) representing two clients whose interests conflict.

In Cecala v. Newman, 532 F.Supp.2d 1118, 1135 (D.Ariz. 2007), the court held that the client’s after the fact shame, humiliation or emotional distress arising from a consensual sexual relationship with the attorney, without more, was not a basis for prevailing on a breach of fiduciary duty claim.

However, if the client showed that the sexual relationship had done real and substantial harm to the client’s legal affairs and this would not have occurred but for the sexual relationship, the client could prevail on a breach of fiduciary duty claim.

The classic breach of fiduciary duty case involving the attorney doing a business deal with the client is Elliot v. Videan, 164 Ariz. 113, 791 P.2d 639 (App. 1989). In that case, the court held that: 1) an attorney choosing to represent adverse clients without informing one client that he was now adverse to him; 2) entering into a business relationship with the client without instructing the client to seek outside counsel; and 3) placing his own interests ahead of the client’s interests in a business transaction, all constituted breaches of fiduciary duty.

By far the most famous case involving representation of adverse clients is Hyatt Regency v. Winston & Strawn, 907 P.2d 506, 184 Ariz. 120 (App. 1995). The attorney in that case represented a large construction company and when it and its sub-contractor were sued, he chose to represent both of them.

The sub-contractor went bankrupt and the attorney continued representing the sub contractor, but kept them in the dark. He eventually began sacrificing the sub-contractor’s interests to protect his main client, the construction company. The sub-contractor eventually came out of bankruptcy and discovered that because of the attorney’s actions, it was liable for seven figures worth of judgments. It sued the attorney and recovered a seven figure award of compensatory damages and a seven figure award of punitive damages, on a breach of fiduciary duty claim.