Risk Update

Former Client Conflicts — Ex-client Lawyer Conflicts Claims Causing Contentious Clashes

Posted Dan Bressler

“3rd Circ. Vacates Grant of Summary Judgment for Attorney on Ex-Client’s Breach-of-Fiduciary Claim” —

  • “The U.S. Court of Appeals for the Third Circuit has reinstated a lawsuit alleging a Pennsylvania attorney breached her fiduciary duty by representing a plaintiff in a claim against one of her former clients.”
  • “Lycoming Engines sued its former attorney on claims of breach of fiduciary duty seeking damages, disgorgement, and declaratory relief after she represented plaintiffs in Torres v. Honeywell Inc., a case involving an engine manufactured by the company, according to the Third Circuit’s July 22 opinion.” https://www2.ca3.uscourts.gov/opinarch/212750np.pdf
  • “‘The type of injury a plaintiff must establish, however, depends on the type of remedy sought,’ stated Judge D. Michael Fisher in his written opinion for the court. ‘We consider, in turn, the kinds of monetary remedies at issue: disgorgement, compensatory damages, attorney’s fees and costs, and nominal damages.'”
  • “Fisher laid out the plaintiff’s burden of proof in a claim of breach of fiduciary duty: ‘(1) a fiduciary relationship existed, (2) the defendant ‘negligently or intentionally failed to act in good faith and solely for [the plaintiff’s] benefit,’ and (3) the breach caused an injury to the plaintiff.'”
  • “Fisher cited Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, a Pennsylvania Supreme Court opinion that stated, ‘[c]ourts throughout the country have ordered the disgorgement of fees paid or the forfeiture of fees owed to attorneys who have breached their fiduciary duties to their clients by engaging in impermissible conflicts of interests.'”
  • “‘In other words,’ stated Fisher, ‘an attorney may not argue that she should be paid because her conflict of interest did not hurt her client.'”
  • “Fisher further agreed with the district court finding that Avco cannot recover attorney’s fees as compensatory damages citing the American Rule: ‘in this Commonwealth, a litigant cannot recover counsel fees from an adverse party unless there is express statutory authorization, a clear agreement of the parties, or some other established exception.’ According to Fisher, the Pennsylvania Supreme Court has consistently upheld that rule.”
  • “Avco introduced, on appeal, that breach of fiduciary duty by an attorney entitles nominal damages, according to the opinion. Fisher, in his dismissal of that claim, stated a nominal damages claim appeared in neither the complaint nor at summary judgement. Since Avco made no argument for exceptional circumstances, it cannot be asserted for the first time on appeal.”

“Firm’s Prior Work For Defendant Doesn’t Amount To Conflict” —

  • “A Tulsa, Oklahoma-based law firm’s previous work for a man doesn’t mean the firm should be barred from representing a couple who sued him after he developed a marijuana farm near their property, a judge found Tuesday.”
  • “Bacon, meanwhile, accused GableGotwals, the firm representing the Grants, of harboring a conflict of interest in the case because an attorney with the firm previously represented him in a separate case. He moved for the firm to be removed from the case in April.”
  • “Magistrate Judge Christine D. Little, however, found that there was no evidence GableGotwals had done any work for Bacon after wrapping up the lawsuit over the loan agreement in 2019. The judge lifted a stay issued in late March in her decision, allowing the Grant’s claims to proceed.”
  • “‘The evidence indicates that the attorney-client relationship terminated well before GableGotwals contacted Bacon on behalf of the plaintiffs in this case,’ according to the judge’s decision.”
  • “Bacon claimed to be bewildered when he learned in August an attorney with GableGotwals was suing him over his marijuana operation. An attorney with the firm previously represented Bacon in a case over a 2015 stock purchase agreement, and Bacon argued he thought the firm still worked for him when the Grants sued over the marijuana farm.”
  • “GableGotwals’ involvement, Bacon argued, amounts to a violation of the Oklahoma Rules of Professional Conduct, which sets a standard for how attorneys must work in Oklahoma federal courts. He argued the firm had access to information about his disaster restoration business that the Grants could use in their case against him.”
  • “The judge, however, found Bacon had failed to show GableGotwals had any information that would help the Grants. The judge also dismissed Bacon’s argument that the Grants filed suit in the first place because GableGotwals knew his net worth and what assets he held.”