Fiduciary duties: breach and damages

 In Legal Malpractice

Lawyers owe fiduciary duties to their clients on top of their legal duties. These duties are (1) complete candor or honesty with the client (and others, where required!); (2) the utmost loyalty to the client; and (3) diligence in pursuit of the client’s objectives. These fiduciary duties are as important, and maybe more so, than ordinary legal duties. For example, juries can easily understand that a lawyer cannot serve two masters, so a finding of a breach of fiduciary duties can come surprisingly easy.  Failing to fulfill your fiduciary duties can lead to malpractice liability, and to another level of separate, recoverable damages, i.e., disgorgement of fees paid, attorney fees in the malpractice case, and punitive damages.

Conflicts of Interest Overview

A common method to breach the fiduciary duty of loyalty is when a conflict of interest exists. This can be where a lawyer’s interests conflict with the interests of the client, or when the interest of one client conflicts with the interest of another client or a former client. Many professions, including the legal profession, regulate conflicts very strictly. This is because the trust of the public is a fundamental building block on which to do business. If a lawyer acts in their own interest, or in the conflicting interest of another client, this is a material breach of the lawyer’s fiduciary duty.

Of course, the worst conflict is between the lawyer’s interests and those of the current client. In a recent study on legal malpractice claims published by the American Bar Association, conflicts of interest was the fifth most common substantive error leading to malpractice and breach of fiduciary duty claims. Without a doubt, a breach of the lawyer’s fiduciary duty of loyalty can lead to significant jury verdicts.

Breaches of Fiduciary Duties: Malpractice Insurance

Judges and juries hold fiduciary duties in high regard. Again, it’s easy for jurors to understand that a professional cannot serve two masters. Liability can be found to lie with one party even if the actions that caused the breach were remedied. For example, in Royal v. Blackwell, 289 Ga. 473 (2011), the court held that even though the monies inappropriately distributed by the fiduciary were returned and all debts rectified, a cause of action for breach of fiduciary duty was still viable. The assets affected are irrelevant: it is the breach itself that the claim seeks to redress. On top of that, the Attorneys’ Liability Assurance Society (ALAS) found in a non-public study of six different mock trials, with six different juries, that if a question of conflict of interest was present, the amount of punitive damages awarded was substantially higher than if it was absent from the case.

Lawyers must be careful to not void malpractice insurance coverage or otherwise leave themselves with no indemnity coverage. A significant minority of professional liability policies do not cover breaches of fiduciary duties, especially if that breach leads to punitive damages. While the case of Travelers Indemnity Co. v. Hood, 110 Ga. App. 855 (1964) establishes that punitive damages are generally insurable in Georgia (unlike in many other states), there are loopholes in policy language if specific intent to breach or harm is found by the fact finder.

Breaches of Fiduciary Duties: Punitive Damages & Attorney’s Fees

A Georgia jury could also find that a professional acted with intent to breach their fiduciary duties. In that case, a jury can award more than the $250,000 punitive damages statutory cap. And in most insurance policies, there is no coverage for intentional acts. In addition to punitive damages, a finding of a breach of fiduciary duties could lead a jury to award attorneys’ fees, expenses of litigation, and possibly a disgorgement of any fees paid by the plaintiff to the defendant lawyer. Professional liability policies generally do not cover fees, litigation expenses, or a disgorgement of fees paid. Obviously, the potential exposure could be significant.

Seek Experienced Assistance

A breach of fiduciary duty claim can have serious and far-reaching consequences for professionals. If you believe you have been injured by a breach, or you fear you have committed one, proactive representation can make a significant difference. The dedicated Atlanta legal malpractice attorneys at Chandler Law have years of experience with these complex and sensitive matters, and will aggressively work toward a resolution that is beneficial to all parties. Contact us to discuss your options.

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