September 17, 2008
Not An Arm's Length Transaction
The New York Appellate Division for the First Judicial Department vacated a grant of partial summary judgment in a legal malpractice action predicated on an alleged conflict of interest. Plaintiff provides trustee and fiduciary liability (TLF) insurance. Defendants had represented plaintiffs for 13 years under a written retainer that contained an nonexclusive representation clause. Defendant then undertook reprsentation of an entity (Legion) that was set up to offer TLF throughout the country. Plaintiff discharged Defendant when it learned of its role in setting up Legion as a competitor and sued on theories of legal malpractice and breach of fiduciary duty.
The court concluded that the nonexclusive language in the retainer did not preclude the suit:
However the various claims asserted by plaintiff are denominated in the complaint, all arise from defendant's failure to adhere to its duty to accord undivided loyalty to its client. It is no defense to defendant's alleged violation of its professional duty that it reserved the right to accept "other employment of a similar or other legal character" during its representation of plaintiff. It is axiomatic that the relationship of attorney and client is fiduciary: "The attorney's obligations, therefore, transcend those prevailing in the commercial market place" and a firm may not circumscribe its professional obligations by purporting to transform the attorney-client relationship into an arm's length commercial affiliation. Thus, a law firm may not evade its professional responsibilities to a client by the expedient of inserting contractual limitations on the firm's ethical duties into the retainer agreement
Because the attorney-client relationship is both contractual and inherently fiduciary, a complaint seeking damages alleged to have been sustained by a plaintiff in the course of such a relationship will often advance one or more causes of action based upon the attorney's breach of some contractual or fiduciary duty owed to the client. The courts normally treat the action as one for legal malpractice only. (citations omitted).
The court further held that the fiduciary breach claim is governed by the same standard of recovery as the legal malpractice claim. (Mike Frisch)
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