Suing Attorneys In Texas For Participating in Fiduciary Breaches

It isn’t unusual for an legal professional to execute all or a part of his or her consumer’s needs, which can be in breach of a fiduciary obligation owed by the consumer to a 3rd occasion. The third occasion can definitely sue the consumer for breaching fiduciary duties. However can the third occasion additionally sue the legal professional for taking part in the consumer’s actions?

An officer or director of an organization might arrange a competing enterprise and direct firm enterprise to the brand new competing enterprise. If the officer or director makes use of an legal professional to arrange this enterprise and the legal professional is aware of that new enterprise shall be used to usurp alternatives, can the corporate sue the legal professional for facilitating the creation of the brand new enterprise? What if the legal professional is an proprietor of the brand new firm or works for the brand new firm in a nonlegal place?

Actually, Texas has authorized theories that may maintain a celebration chargeable for taking part with a fiduciary in breaching duties owed by the fiduciary. There’s a declare for realizing participation in a breach of fiduciary obligation. See Kinzbach Instrument Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2nd 509, 514 (1942); Paschal v. Nice W. Drilling, Ltd., 215 S.W.3d 437, 450 (Tex. App.—Eastland 2006, pet. denied) (holding spouse chargeable for realizing participation in worker’s embezzlement the place funds have been positioned in joint account and spouse benefitted from stolen funds). See additionally Westech Capital Corp. v. Salamone, 2019 U.S. Dist. LEXIS 143577, 2019 WL 4003093, at *1 (W.D. Tex. Aug. 23, 2019) (amassing instances that designate that “Texas appellate courts have routinely recognized the existence of a cause of action for knowing participation in the breach of fiduciary duty.”). The final components for a knowing-participation declare are: 1) the existence of a fiduciary relationship; 2) the third occasion knew of the fiduciary relationship; and three) the third occasion was conscious it was taking part in the breach of that fiduciary relationship. D’Onofrio v. Trip Publ’ns, Inc., 888 F.3d 197, 216 (fifth Cir. 2018); Meadows v. Harford Life Ins. Co., 492 F.3d 634, 639 (fifth Cir. 2007). There may be additionally a acknowledged civil conspiracy declare in Texas. The important components of a civil conspiracy are (1) two or extra individuals; (2) an object to be completed; (3) a gathering of the minds on the thing or plan of action; (4) a number of illegal, overt acts; and (5) damages because the proximate end result. Juhl v. Airington, 936 S.W.2nd 640, 644 (Tex. 1996). Lastly, there could also be an aiding-and-abetting breach-of-fiduciary-duty declare. The Texas Supreme Court docket has said that it has not expressly adopted a declare for aiding and abetting outdoors the context of a fraud declare. See First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 224 (Tex. 2017); Ernst & Younger v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 583 n. 7 (Tex. 2001); West Fork Advisors v. Sungard Consulting, 437 S.W.3d 917 (Tex. App.—Dallas 2014, no pet.). However, some Texas courts have discovered such an motion to exist. See Hendricks v. Thornton, 973 S.W.2nd 348 (Tex. App.—Beaumont 1998, pet. denied); Floyd v. Hefner, 556 F.Supp.2nd 617 (S.D. Tex. 2008). One court docket recognized the weather for aiding and abetting because the defendant should act with illegal intent and provides substantial help and encouragement to a wrongdoer in a tortious act. West Fork Advisors, 437 S.W.3d at 921. Some courts have held that right here is not any aiding and abetting breach of fiduciary obligation declare. Hampton v. Fairness Belief Co., No. 03-19-00401-CV, 2020 Tex. App. LEXIS 5674 (Tex. App.—Austin July 23, 2020, no pet.). See additionally Midwestern Cattle Mktg., L.L.C. v. Legend Financial institution, N.A., 2019 U.S. App. LEXIS 36966, 2019 WL 6834031, at *7 (fifth Cir. Dec. 13, 2019); In re DePuy Orthopaedics, Inc.Pinnacle Hip Implant Prod. Liab. Litig., 888 F.3d 753, 782, 781 (fifth Cir. 2018)  For a dialogue of those types of joint legal responsibility for breach of fiduciary obligation, please see E. Hyperlink Beck, Joint and A number of Legal responsibility, STATE BAR OF TEXAS, 10TH ANNUAL FIDUCIARY LITIGATION COURSE (2015).

It’s clear that no less than below some theories, that third events might be held chargeable for taking part in fiduciary breaches with the occasion owing fiduciary duties. Can the third occasion be an legal professional? Previous to Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477 (Tex. 2015), it was unclear in Texas whether or not a celebration might assert a declare in opposition to an legal professional not representing the occasion, corresponding to for negligent misrepresentation or aiding and abetting fraud or breaches of fiduciary obligation. Some courts allowed the declare if the legal professional was committing or taking part in fraud. Others didn’t.

The plaintiff in Cantey Hanger alleged that the attorneys who represented her husband in a divorce continuing had dedicated fraud by falsifying a invoice of sale to shift tax liabilities from the sale of an airplane from her husband to her. Id. at 479-80. The Texas Supreme Court docket held that legal professional immunity barred the declare as a result of “[e]ven conduct that is ‘wrongful in the context of the underlying suit’ is not actionable if it is ‘part of the discharge of the lawyer’s duties in representing his or her client.’” Id. at 481. The next are key excerpts from the opinion:

Texas frequent regulation is properly settled that an legal professional doesn’t owe an expert obligation of care to 3rd events who’re broken by the legal professional’s negligent illustration of a consumer. Barcelo v. Elliott, 923 S.W.2nd 575, 577 (Tex. 1996); see additionally McCamish, Martin, Brown & Loeffler v. F.E. Appling Pursuits, 991 S.W.2nd 787, 792 (Tex. 1999) (explaining {that a} lack of privity precludes attorneys’ legal responsibility to non-clients for authorized malpractice). Nonetheless, Texas courts have developed a extra complete affirmative protection defending attorneys from legal responsibility to non-clients, stemming from the broad declaration over a century in the past that “attorneys are authorized to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.” Kruegel v. Murphy, 126 S.W. 343, 345 (Tex. Civ. App. 1910, writ ref’d). This attorney-immunity protection is meant to make sure “loyal, faithful, and aggressive representation by attorneys employed as advocates.” Mitchell v. Chapman, 10 S.W.3d 810, 812 (Tex. App.—Dallas 2000, pet. denied).

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In accordance with this objective, there’s consensus among the many courts of appeals that, as a common rule, attorneys are immune from civil legal responsibility to non-clients “for actions taken in connection with representing a client in litigation.” Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 405 (Tex. App.—Houston [1st Dist.] 2005, pet. denied); see additionally Toles v. Toles, 113 S.W.3d 899, 910 (Tex. App.—Dallas 2003, no pet.); Renfroe v. Jones & Assocs., 947 S.W.2nd 285, 287-88 (Tex. App.—Fort Price 1997, pet. denied). Even conduct that’s “wrongful in the context of the underlying suit” isn’t actionable whether it is “part of the discharge of the lawyer’s duties in representing his or her client.” Toles, 113 S.W.3d at 910-11;

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Conversely, attorneys should not shielded from legal responsibility to non-clients for his or her actions when they don’t qualify as “the kind of conduct in which an attorney engages when discharging his duties to his client.” Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *9; see additionally Chapman Kids’s Belief v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 442 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (noting that “it is the kind of conduct that is controlling, and not whether that conduct is meritorious or sanctionable”).

As a result of the main target in evaluating legal professional legal responsibility to a non-client is “on the kind—not the nature—of the attorney’s conduct,” a common fraud exception would considerably undercut the protection. Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *8. Merely labeling an legal professional’s conduct “fraudulent” doesn’t and shouldn’t take away it from the scope of consumer illustration or render it “foreign to the duties of an attorney.” Alpert, 178 S.W.3d at 406 (citing Poole, 58 Tex. at 137); see additionally Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *9 (“Characterizing an attorney’s action in advancing his client’s rights as fraudulent does not change the rule that an attorney cannot be held liable for discharging his duties to his client.”).

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Fraud isn’t an exception to legal professional immunity; quite, the protection doesn’t prolong to fraudulent conduct that’s outdoors the scope of an legal professional’s authorized illustration of his consumer, simply because it doesn’t prolong to different wrongful conduct outdoors the scope of illustration. An legal professional who pleads the affirmative protection of legal professional immunity has the burden to show that his alleged wrongful conduct, no matter whether or not it’s labeled fraudulent, is a part of the discharge of his duties to his consumer.

Id. at 481-484.

Based mostly on the holding in Cantey Hanger, if an legal professional is performing duties {that a} lawyer would sometimes carry out, the legal professional immunity protection would apply. This protection would likewise apply to aiding and abetting fraud and breaches of fiduciary obligation. See Kastner v. Jenkens & Gilchrist, P.C., 231 S.W.3d 571, 577-78 (Tex. App.—Dallas 2007); Span Enters. v. Wooden, 274 S.W.3d 854, 859 (Tex. App.—Houston [1st Dist.] 2008).

In Bethel v. Quilling, Selander, Lownds, Winslett & Moser, P.C., the Court docket prolonged the Cantey Hanger holding to allegations of legal conduct. 595 S.W.3d 651, 657-58 (Tex. 2020). There, the plaintiff had urged the Court docket “to recognize an exception” to legal professional immunity “whe[n] a third party alleges that an attorney engaged in criminal conduct during the course of litigation.” Id. The Court docket rejected the invitation to undertake an exception or state a categorical rule as a result of doing so would permit plaintiffs to keep away from the attorney-immunity protection via suave pleading—”by merely alleging that an legal professional’s conduct was ‘criminal.’” Id. The Court eschewed a categorical exception for criminal conduct because such an exception would defeat the purposes of the attorney-immunity defense. Instead, the Court held that conduct alleged to be criminal in nature “is not categorically excepted from the protections of attorney civil immunity when the conduct alleged is connected with representing a client in litigation.” Id. As we explained there, a lawyer who is doing his or her job is not more susceptible to civil liability just because a nonclient asserts that the lawyer’s actions are fraudulent, wrongful, and even legal. Id.

In 2021, the Texas Supreme Court docket additional clarified the holding in Cantey Hanger to state that “When an attorney personally participates ‘in a fraudulent business scheme with his client,’ as opposed to on his client’s behalf, the attorney ‘will not be heard to deny his liability’ because ‘such acts are entirely foreign to the duties of an attorney.’” Haynes & Boone, LLP v. NFTD, LLC, 631 S.W.3d 65, 77 (Tex. 2021) (quoting Poole v. Hous. & T.C. Ry. Co., 58 Tex. 134, 137 (1882)). The Court docket in Haynes & Boone, LLP, additionally expanded the Cantey Hanger holding to increase to transactional work that the legal professional performs, in addition to litigation work lined in the Cantey Hanger opinion:

Immediately we affirm that legal professional immunity applies to claims based mostly on conduct outdoors the litigation context, as long as the conduct is the “kind” of conduct we’ve described above. We attain this conclusion as a result of we see no significant distinction between the litigation context and the non-litigation context on the subject of the explanations we’ve acknowledged legal professional immunity in the primary place. Now we have acknowledged legal professional immunity as a result of attorneys are duty-bound to competently, diligently, and zealously characterize their purchasers’ pursuits whereas avoiding any conflicting obligations or duties to themselves or others.

Id. at 79.

Most lately, in Taylor v. Tolbert, the Court docket reviewed whether or not there was an exception to immunity for private-party civil fits asserting {that a} lawyer has engaged in conduct criminalized by statute. No. 20-0727, 2022 Tex. LEXIS 385 (Tex. Could 6, 2022). The court docket mentioned the immunity protection as follows:

The common-law attorney-immunity protection applies to lawyerly work in “all adversarial contexts in which an attorney has a duty to zealously and loyally represent a client” however solely when the declare in opposition to the legal professional is predicated on “the kind of conduct” attorneys undertake whereas discharging their skilled duties to a consumer. Said inversely, if an legal professional engages in conduct that isn’t “lawyerly work” or is “entirely foreign to the duties of a lawyer” or falls outdoors the scope of consumer illustration, the attorney-immunity protection is inapplicable.

In figuring out whether or not conduct is “the kind” immunity protects, the inquiry focuses on the kind of conduct at concern quite than the alleged wrongfulness of that conduct. However when the protection applies, counsel is shielded solely from legal responsibility in a civil go well with, not from “other mechanisms” that exist “to discourage and remedy” bad-faith or wrongful conduct, together with sanctions, skilled self-discipline, or legal penalties, as applicable.

Conduct isn’t the sort of conduct legal professional immunity protects “simply because attorneys often engage in that activity” or as a result of an legal professional carried out the exercise on a consumer’s behalf. Relatively, the conduct should contain “the uniquely lawyerly capacity” and the legal professional’s abilities as an legal professional. For instance, a lawyer who makes publicity statements to the press and on social media on a consumer’s behalf does “not partake of ‘the office, professional training, skill, and authority of an attorney’” because “[a]nyone—including press agents, spokespersons, or someone with no particular training or authority at all—can publicize a client’s allegations to the media.” Immunity attaches provided that the legal professional is discharging “lawyerly” duties to his or her consumer.

A corollary to this precept is that attorneys won’t be entitled to civil immunity for conduct that’s “entirely foreign to the duties of an attorney.” “Foreign to the duties” doesn’t imply one thing an excellent legal professional shouldn’t do; it implies that the legal professional is appearing outdoors his or her capability and performance as an legal professional. For that purpose, whether or not counsel might declare the privilege activates the duty that was being carried out, not whether or not the challenged conduct was meritorious.

That is so as a result of the pursuits of purchasers demand that attorneys “competently, diligently, and zealously represent their clients’ interests while avoiding any conflicting obligations or duties to themselves or others.” To forestall chilling an legal professional’s trustworthy discharge of this obligation, attorneys should be capable to pursue authorized rights they deem crucial and correct for his or her purchasers with out the menace of civil legal responsibility looming over them and influencing their actions. Lawyer immunity furthers “loyal, faithful, and aggressive representation” by “essentially . . . removing the fear of personal liability,” thus “alleviating in the mind of [an] attorney any fear that he or she may be sued by or held liable to a non-client for providing . . . zealous representation.” In this manner, the protection protects not solely attorneys but additionally their purchasers, who might be assured that counsel is representing the consumer’s finest pursuits, not the lawyer’s.

Id. The Court docket acknowledged that “there is a wide range of criminal conduct that is not within the ‘scope of client representation’ and [is] therefore ‘foreign to the duties of an attorney,’” and that “when that is the case, the circumstances do not give rise to an ‘exception’ to the immunity defense; rather, such conduct simply fails to satisfy the requirements for invoking the defense in the first instance.” Id. “[O]ur approach to applying the attorney-immunity defense remains functional, not qualitative, and leaves an attorney’s improper conduct addressable by public remedies.” Id.

The Court docket then held that the common-law protection of legal professional immunity would nonetheless apply to state statutes (except the statute particularly abrogated that protection). Id. The Court docket said:

That doesn’t imply that each one conduct criminalized by the wiretap statute is immunized from civil legal responsibility or freed from penalties. As we defined in Bethel, whereas legal conduct isn’t categorically excepted from the attorney-immunity protection, neither is it categorically immunized by that protection. Felony conduct might fall outdoors the scope of legal professional immunity, and even when it doesn’t, “nothing in our attorney-immunity jurisprudence affects an attorney’s potential criminal liability if the conduct constitutes a criminal offense.”

Id. Nonetheless, relating to federal statutes, the Court docket concluded “that attorney immunity, as recognized and defined under Texas law, is not a defense under the federal wiretap statute because, quite simply, a state’s common-law defense does not apply to federal statutes.” Id.

In mild of the foregoing authorities, it seems claims in opposition to attorneys merely doing work for a consumer (whether or not fraudulent, tortious, and even legal) could be lined by legal professional immunity and bar any participation in breach of fiduciary obligation declare. Nonetheless, if the misconduct pertains to the legal professional personally benefitting from the transaction, or having been a celebration to the transaction (versus merely the legal professional for a celebration), such an immunity wouldn’t apply. See, e.g., Olmos v. Giles, No. 3:22-CV-0077-D, 2022 U.S. Dist. LEXIS 77134 (N.D. Tex. April 28, 2022) (refused to dismiss breach of fiduciary obligation declare and misrepresentation declare in opposition to attorneys the place it was unclear whether or not the defendant attorneys have been part of the transaction).

One other concern that must be mentioned is the impression on the legal professional consumer privilege when an legal professional participates in fraud or legal actions. The attorney-client privilege can’t be enforced when “the services of the lawyer were sought or obtained to enable or aid anyone to commit what the client knew or reasonably should have known to be a crime or fraud.” Tex. R. Evid. 503 (d)(1). As one court docket describes:

The exception applies solely when (1) a prima facie case is fabricated from contemplated fraud, and (2) there’s a relationship between the doc at concern and the prima facie proof provided. A prima facie exhibiting is enough if it units forth proof that, if believed by a trier of reality, would set up the weather of a fraud or crime that “was ongoing or about to be committed when the document was prepared.” A court docket might look to the doc itself to find out whether or not a prima facie case has been established.…

We start our evaluation by analyzing the scope of the fraud portion of the crime/fraud exception. The Texas Guidelines of Proof don’t outline what is meant in Rule 503(d)(1) by the phrase “to commit . . . [a] fraud.” Black’s Regulation Dictionary defines fraud as: “A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.” The Texas frequent regulation tort of fraud additionally requires proof of misrepresentation, concealment, or non-disclosure. The authorized idea of fraud subsequently has at its core a misrepresentation or concealment. This definition additionally dovetails with the obvious reasoning behind inclusion of fraud in the exception: by conserving consumer communications confidential–pursuant to the attorney-client privilege –the legal professional whose consumer intends to make a misrepresentation or concealment helps stop the injured occasion from studying the reality in regards to the misrepresentation or concealment. Thus, in that state of affairs, the legal professional’s silence affirmatively aids the consumer in committing the tort. This isn’t usually true of different torts (not based mostly on misrepresentation or concealment) and explains why the exception isn’t the crime/tort exception.

In re Gen. Brokers Ins. Co. of Am., Inc., 224 S.W.3d 806, 819 (Tex. App.—Houston [14th Dist.] 2007, orig. continuing). Furthermore, the Texas Court docket of Felony Appeals has held that this exception contains the work-product in the right circumstances. Woodruff v. State, 330 S.W.3d 709, 2010 Tex. App. LEXIS 9569 (Tex. App. Texarkana Dec. 3, 2010), pet. ref’d No. PD-1807-10, 2011 Tex. Crim. App. LEXIS 749 (Tex. Crim. App. Could 25, 2011), pet. ref’d No. PD-1807-10, 2011 Tex. Crim. App. LEXIS 770 (Tex. Crim. App. June 1, 2011), cert. denied, 565 U.S. 977, 132 S. Ct. 502, 181 L. Ed. 2nd 347, 2011 U.S. LEXIS 7788 (U.S. 2011).

So, although an legal professional could also be immune from civil legal responsibility, the crime/fraud exception might open up legal professional/consumer communications to the sunshine of day. Relating to crimes involving breaches of fiduciary obligation, in addition to theft crimes, the Texas Legislature has created the next crimes: (1) Monetary Abuse of Aged Particular person in Texas Penal Code Part 32.55; 2) Monetary Exploitation of Susceptible People in Texas Penal Code Part 32.53; (3) Misapplication of Fiduciary Property in Texas Penal Code Part 32.45; and (4) Failure to Report of the Exploitation of the Aged or Disabled People in the Texas Human Sources Code Part 48.051.

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