Friday, June 25, 2010

Unethical To Buy The Farm

The Wisconsin Supreme Court affirmed the rescission of a real estate contract between an attorney and his clients in a chapter 13 bankruptcy. The court did not accept the attorney's "defense" that he had been suspnded prior to the sale:

Trewin [the attorney] maintains that the elements are not met because nothing he did while he had an attorney-client relationship with the Grosheks constituted a breach of fiduciary duty, and because such a duty no longer existed at the time he purchased the Grosheks' land because the attorney-client relationship ceased when his law license was suspended on August 31, 2004.  Specifically, he argues that an attorney has no fiduciary duty to former clients, and at the time of the property sale, the Grosheks were former clients.  Because the bankruptcy filing made the Grosheks' financial distress a matter of public knowledge, Trewin argues that there is no basis for concluding that he used confidential information gained as the Grosheks' counsel in negotiating the purchase.  He further argues that there was no injury to the Grosheks because the underlying cause of the sale of their land——their financial difficulties——did not result from his actions; in other words, they would have lost the farm whether he bought it or not.  As for the documents signed by the Grosheks on August 30, 2004, Trewin argues that they imposed no legal obligation on the Grosheks and that he never sought to enforce them; therefore, they cannot serve as the basis for a finding of breach of fiduciary duty.

The clients contended:

The Grosheks argue that Trewin remained their attorney and thus retained a fiduciary duty to them well beyond August 31, 2004, the date upon which his law license was suspended.  They point to subsequent bills for legal services and the language of the waiver of conflict of interest, which they construe as implying that the attorney-client relationship would be ongoing and would be affected in the future only if they failed to make lease payments.  They alternatively argue that agency law and rules of professional conduct impose an obligation on Trewin not to use information against a former client, and that those principles support a finding that Trewin had a continuing fiduciary duty to the Grosheks even if the attorney-client relationship had ended.  Additionally, they argue that the information Trewin used did indeed include confidential information about the Grosheks far beyond what would have been publicly disclosed in bankruptcy filings, such as their neighbors' interest in purchasing part of the property, their own understanding of related tax liabilities, and other factors that ultimately played a role in the sale of the land.

The court majority concluded that punitive damages were not available. Chief Justice Abrahamson disagreed:

I conclude that the failure to recover compensatory damages——actual, presumed, nominal, or otherwise——has no logical bearing on the propriety of a punitive award.  The suitability of a punitive damage award should be determined by the usual rule, evaluating the nature of the wrongdoer's conduct.  The economic magnitude of the wrongdoing may or may not be properly represented by an award of compensatory damages and the absence of such an award should not raise a categorical bar to punitive damages if the conduct otherwise warrants them.

(Mike Frisch)

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We are in grave times when bad faith parties can argue that someone else would have gotten what I stole!

Posted by: Laser Haas | Jun 28, 2010 6:17:49 AM

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