Oregon Supreme Court Addresses The Issue Of A Lawyer Aiding & Abetting Their Client's Breach of Fiduciary Duty
Those of us who work on legal malpractice cases in Illinois are familar with the Thornwood, Inc. v. Jenner & Block decision which I have posted about previously, here. Thornwood recognized a claim in Illinois against a lawyer for aiding and abetting a client's breach of fiduciary duty by knowingly providing substantial assistance to a client in the breach of his duty. Thornwood Decision here. However, the Supreme Court in Oregon recently took a contrary position, holding that an attorney whose advice and assistance to a client is within the scope of the attorney-client relationship may not be liable to a third party for assisting the client in a breach of fiduciary duty. Oregon Decision: Reynolds v. Schrock here.
In the Oregon case, a dispute over a joint venture developed between Schrock and Reynolds. The parties reached a settlement and agreed that Reynolds would convey his interest in a piece of recreational property to Schrock and that the parties would sell another piece of timber property, with the proceeds going to Reynolds. In the event the timber property did not yield the money needed for Reynolds to recoup his investment, it was agreed that Schrock would pay any shortfall. Reynolds was to hold a security interest in the recreational property to secure the obligation of Schrock to pay any shortfall. Schrock's attorney darfted this agreement. After Reynolds conveyed his interest in the recreational property to Schrock, the attorney advised Schrock that she could sell the recreational property, and advised her that she was not required to keep the recreational property in case the timber property yielded less than Reynold's original investment. The attorney then assisted Schrock in selling the recreational property to a third party and went on to ask the escrow officer from the sale to refrain from telling Reynolds about the sale. Reynolds then sued Schrock and her attorney and eventually settled with Schrock. Reynolds case against Schrock's attorney alleged that the attorney was jointly liable for Schrock's breach of fiduciary duty because the attorney assisted Schrock in the improper transaction.
In its holding in favor of the attorney, the Oregon Supreme Court held that in order for an attorney to be liable to a third party for assisting a client in a breach of fiduicary duty, an attorney must act outside the scope of the attorney-client relationship. Therefore, since the attorney acted within the scope of his attorney-client relationship with Schrock, his advice and conduct were protected by qualified privilege.
The court gave three exceptions to this qualified privilege: 1) attorneys are not insulated from liability for conduct that is impermissible or unrelated to the representation; 2) the privilege does not apply when attorneys act for their own self-interest and contrary to the client's interest; and 3) conduct that falls within the "crime or fraud" exception isn't protected.
As I stated in my previous post on this issue, these cases bring up interesting ethical issues. Why shouldn't an attorney be liable to a third party if he or she substantially assists a client in a breach of fiduciary duty (or goes even beyond assisting, like in this case, and leads the way in the breach). Shouldn't lawyers be held accountable for their negligence? The Oregon Court would probably argue that the Reynold's decision is not insulating the lawyer from responsibility, it is just narrowing the players in these types of lawsuits. While the third party cannot sue the attorney, his client still can for the negligent advice.
* Pictured Above: The Oregon Supreme Court