Risk Update

Conflicts Cases & Updates — Fiduciary Duty Discussion

Posted Dan Bressler

I always find interesting updates (and the comments are worth reading) through Bill Freivogel’s web site. Here are some recent highlights involving conflicts and law firm fiduciary duty:

Malpractice Liability (posted January 15, 2020) Amer. E Group PLLC v. Livewire Ergonomics Inc., 2020 WL 209903 (S.D.N.Y. Jan. 14, 2020).

  • “AEG is suing Livewire on a note. Livewire brought a third-party complaint against the Barkats law firm because Barkats represented Livewire in obtaining the financing and preparing the note. Livewire is claiming that that the terms of the note were unfavorable to Livewire and that Barkats had a conflict of interest, thus breaching its fiduciary duty to Livewire. Livewire has also joined Elana Hirsch, a principal at AEG, as a third-party defendant, claiming she aided and abetted Barkats’ breach. Hirsch moved to dismiss the third-party complaint against her. In this opinion the court denied the motion.”
  • “The problem is that AEG is related to the Barkats law firm, including the fact that Hirsch is married to Sunny Barkats, the firm’s named partner. The engagement agreement between Barkats and Livewire said that Livewire was waiving any conflict that might arise out of the financing being with an entity related to Barkats. However, the court said that this reference to a possible future, “hypothetical,” conflict falls far short of Rule 1.7’s requirement for an informed consent (see, especially, footnote 4). [Our note: The opinion contains a helpful discussion of lawyers’ breach of fiduciary duty and of a third party’s aiding and abetting such a breach. The opinion also discusses the applicability of New York’s versions of Rules 1.7 and 1.8(a).]”

 

Commercial Negotiations; Both Sides of Deal (posted January 10, 2020) Doyle v. Otto, 2020 WL 105089 (Ia. App. Jan. 9, 2020).

  • “Geri Doyle and Caren De Voe were partners in a real estate brokerage business. Lawyer Mark Otto had represented both of them in various business contexts. When Doyle and De Voe agreed to part, they hired Otto to prepare the needed documents. Otto asked them to sign a conflicts waiver. De Voe insisted on a ten year non-compete clause. When Doyle asked Otto about the length, Otto opined that he did not think a court would enforce it for more than ‘two to three years.’ Doyle signed the contract Otto prepared, which included the ten-year non-compete provision.”
  • “Later, in a new business, Doyle started listing property in a county named in the non-compete. De Voe reminded Doyle about the non-compete. Doyle responded by filing this action seeking a declaration that the non-compete was not enforceable and seeking malpractice damages against Otto. We will focus on the claims against Otto. The trial court granted Otto summary judgment. In this opinion the appellate court affirmed. It was clear that De Voe and Doyle agreed on all the separation terms without Otto’s involvement and that Doyle was sophisticated about the real estate business. The court found that Otto’s prediction about the excessiveness of the ten-year term was good advice. Thus, the court held that Otto had not been negligent, and that he had not breached his fiduciary duty to Doyle.”