Damages in Breach of Fiduciary Duty Cases
In addition to legal duties, lawyers owe fiduciary duties to their clients. Those fiduciary duties are the duties of (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. When serving as a lawyer in litigation, it is wise to be especially mindful of your fiduciary duties so as to limit your malpractice liability exposure. In other words, it is even more important than usual to be aware of exactly what your specific fiduciary duties are, and to perform them to the letter. If you fail to do so, you may be exposing yourself not only to malpractice liability, but to another level of damages that would ordinarily not be recoverable if you only committed malpractice and did not breach any of your fiduciary duties owed to the client.
Conflicts of Interest Overview
One of the most common methods in which a breach of fiduciary duty occurs is when a conflict of interest exists. A conflict of interest is when a lawyer’s interests conflict with the interests of his client, or when the interest of one client conflicts with the interest of another client or a former client of the lawyer. Many professions, including the legal profession, regulate conflicts strictly, reasoning that the trust of the public is a fundamental building block on which to do business. When a lawyer holds his interests above those of the client, a multitude of bad things can occur. As a professional in a fiduciary position, you are required to act not in your own interests, but in the interests of the people for whom you are performing that duty. If you act in your own interest, that is a material breach of that duty for which you can be found liable.
A conflict of interest can lead to an egregious breach of the lawyer’s fiduciary duties, especially if it is a conflict between the lawyer’s and the current client’s interests (as opposed to those of a third party or former client). Generally speaking, exploiting conflicts of interest is one of the most common types of substantive error an attorney can commit, as well as the type of case that tends to consistently yield high dollar verdicts. In the most 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.
Breaches of Duty, Punitive Damages & Malpractice Insurance
Judges and juries tend to hold candor, loyalty, and diligence—the fiduciary duties—in very high regard. It is easy for jurors to understand that a professional cannot serve two masters. Indeed, through the years, we have heard and continue to hear potential clients use fiduciary duty buzz words to describe what they believe has occurred in their cases. Often, liability will be found to lie with one party even if the actions that caused the breach were remedied, as seen in the case of Royal v. Blackwell, 289 Ga. 473 (2011). In Royal, 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.
In today’s environment, it is especially important that you not void your malpractice insurance coverage or otherwise leave yourself with only an errors and omissions (E&O) policy and no indemnity coverage. A significant minority of E&O policies do not cover breach of fiduciary duty, 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. What’s more, should a Georgia jury find that a professional acted with intent to breach his fiduciary duties, then a jury may exceed the $250,000 punitive damage statutory cap and award more than $250,000 in punitive damages. In most malpractice insurance policies, there is no coverage for intentional acts committed. 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 his defendant lawyer. An award of fees, litigation expenses and/or a disgorgement of fees paid will most likely not be covered by a lawyers E&O policy either. 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 are in a position where 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.
