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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 14, 1995 Decided January 19, 1996

No. 94-7082

ANNE P. HENDRY, ET AL.,

APPELLANTS

v.

FRANCIS J. PELLAND AND

SADUR, PELLAND & RUBINSTEIN, P.C.,

APPELLEES

Consolidated with

94-7083, 94-7084

-

Appeals from the United States District Court

for the District of Columbia

(No. 91cv01232)

Ernest S. Hendry, Jr., appearing pro se, argued the cause for appellants, with whom Anne P. Hendry

and Judith V. Hendry, appearing pro se, were on the brief.

Ellen G. Draper argued the cause for appellees, with whom Joel M. Savits, Francis J. Pelland and

Joel S. Rubinstein were on the brief.

Before: GINSBURG, ROGERS and TATEL, Circuit Judges.

Opinion for the court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Three clients sued their former attorney and his law firm for breach

of fiduciary duty, seeking punitive damages, compensatory damages, and disgorgement of the legal

fees they had paid. The attorney's law firm counterclaimed for unpaid legal fees. Applying District

of Columbia law, we addressthree district court rulings made during the jury trial. First, because we

agree with the district court that the record contained insufficient evidence for a reasonable jury to

find that the attorney wilfully disregarded his clients' rights, we affirm the judgment denying the

clients' request for punitive damages. Second, concluding that clients seeking disgorgement of legal

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fees for a breach of their attorney's fiduciary duty of loyalty need only prove that their attorney

breached that duty, not that the breach injured them, and finding that the clients here presented

sufficient evidence for a jury to conclude that their attorney breached his duty of loyalty, we set aside

the district court's judgment for the lawyer and his law firm on the fiduciary duty claim. Finally,

because the clients had a valid claim for breach of fiduciary duty, we set aside the court's ruling

precluding them from using that breach as a defense to the law firm's counterclaim for unpaid fees.

We therefore remand for a new trial on the clients' breach of fiduciary duty claim and the law firm's

counterclaim for legal fees.

I.

Five members of the Hendry familythe mother, her son and daughter, and the daughter's

two infant childrenowned an historic twenty-acre parcel of land in Arlington County, Virginia as

tenantsin common. The adult owners of the property, as well as the spouses of the son and daughter,

who held rights of dower and curtesy, signed an agreement to sell the property for $4.5 million to a

developer who planned to build a retirement home on the land. According to the agreement, if

county officials failed to approve zoning changes needed to build the retirement home, the parties

would undertake "good faith" negotiations to restructure the transaction. When county officials

turned downthe retirement home project, the developer proposed amending the agreement to provide

for the construction of a 56-unit residential development. Under the proposed amendment, the $4.5

million price was unchanged. Although the son told the developer that he objected to the proposed

amendment, hismother and the developersigned the amendment while the sonwas away on vacation.

Discovering what hismother had done, the son and his wife retained Francis Pelland, a partner

in the Washington, D.C. law firm of Sadur, Pelland & Rubinstein. The son explained to the lawyer

that he was opposed to the residentialdevelopment and concerned about hismother'smental capacity.

Relying on the agreement's "good faith" clause, Pelland advised his clients not to oppose the

residential development. Although the county ultimately approved the site plan for the residential

development, all of the ownersnow including the motherrefused to sell. Claiming breach of

contract and unjust enrichment, the developer sued them in a Virginia state court.

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While Pelland originally represented only the son and his wife, he represented all the owners

of the property in defending the lawsuit. At a conference shortly before trial, the presiding judge told

the parties that although the developer's contractual claims were meritless, the unjust enrichment

claimhad merit because the developer's effortsin securing county approval ofthe residentialsite plan

increased the value of the Hendrys' property. He advised the litigants to negotiate a settlement on

the unjust enrichment claim. Following Pelland's advice, the family settled with the developer for $1.5

million.

Unhappywith thisresult, three ofthe clientsthemother, the son, and his wifesued Pelland

and his law firm in the United States District Court for the District of Columbia based on diversity

of citizenship, claiming both professional negligence and breach of fiduciary duty. The Hendrys

sought identical relief on both claims: punitive damages; $2,069,000 in compensatory damages

(representing the $1.5 million settlement plus amounts for interest, additional property taxes, and

remodeling costs); and return of $86,538.62 in legal fees they had paid. The law firm counterclaimed

for $37,504.38 in unpaid legal fees.

Determining that District of Columbia law governed the Hendrys' claims against Pelland and

his law firm, the district court issued the three rulings that are before us in this appeal. After the

Hendrys presented their case-in-chief, the district court granted Pelland's motion for judgment as a

matter of law on punitive damages, explaining that "the evidence that has been presented in this case

to date by no stretch of the imaginationat least my imaginationwould warrant submitting the

issue of punitive damages to this jury." At the close of all the evidence, the court granted Pelland's

motion for judgment as a matter of law on the breach of fiduciary duty claim for compensatory

damages and disgorgement of legal fees, finding that the Hendrys had failed to present any evidence

as to the applicable standard of conduct. Finally, because the Hendrys no longer had a claim for

breach offiduciary duty, the court prohibited them fromarguing breach offiduciary duty as a defense

to the law firm's counterclaim for legalfees. Accordingly, only the Hendrys' negligence claim (minus

their request for punitive damages) and the law firm's counterclaim for legal fees went to the jury.

The Hendryslost on both counts. Entering judgment for Pelland and his law firm, the court awarded

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the firm its unpaid legal fees.

The Hendrysmoved for a new trial on their fiduciary duty claimand the counterclaimfor legal

fees. Acknowledging that, contrary to its ruling at trial, the Hendrys had indeed presented sufficient

evidence to establish that Pelland breached hisfiduciaryduty, the court nonetheless denied the motion

for a new trial. Explaining that the jury's verdict on the negligence claim showed the Hendrys' entire

lawsuit was without merit, the district court ruled that they were not sufficiently prejudiced to be

entitled to a new trial on either the fiduciary duty claim or counterclaim. 

The Hendrys now appeal the district court's three rulings during trial and the denial of the

motion for a new trial. Because we set aside the court's rulings during trial on the fiduciary duty

claim and the counterclaim, thus entitling the Hendrys to a new trial on these claims, we need not

address the district court's denial of the motion for a new trial.

II.

We can affirm the district court'srulings only if we find "no legally sufficient evidentiary basis

for a reasonable jury to find for" the Hendrys under applicable District ofColumbia law. Fed. R. Civ.

P. 50(a)(1). We review the district court's rulings de novo, considering the evidence in the light most

favorable to the Hendrys and making all reasonable inferences in their favor. See Mackey v. United

States, 8 F.3d 826, 829 (D.C. Cir. 1993).

We agree with the district court that a reasonable jury could not have awarded punitive

damages on the basis of the evidence presented at trial. Whether clients sue their attorney for

professionalnegligence or breach offiduciaryduty, District ofColumbia law allows punitive damages

only if the attorney acted with "fraud, ill will, recklessness, wantonness, oppressiveness, [or] willful

disregard of the [clients'] rights." Dalo v. Kivitz, 596 A.2d 35, 41 & n.15 (D.C. 1991) (quoting

Washington MedicalCtr., Inc. v. Holle, 573 A.2d 1269, 1284 (D.C. 1990)) (internalquotationmarks

omitted). At trial, the Hendrys maintained that they were entitled to punitive damages because the

attorney was not "well advised" on certain points of law, that he did not "properly protect" the

mother during discovery, and that he ignored advice from a legal assistant during settlement

negotiations. Like the district court, we cannot imagine how these allegations could support punitive

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damages. If true, the Hendrys' allegations may well suggest that Pelland acted imprudently or

incompetently, but they fall far short ofshowing the blatant wrongdoing necessary for a jury to infer

that he acted either with deliberate malice or conscious disregard of his clients' rights. See, e.g.,

Brown v. Coates, 253 F.2d 36, 40 (D.C. Cir. 1958) (finding punitive damages appropriate when real

estate broker "executed a carefully planned and cleverly concealed method" to deprive homeowners

of equity in their property); Wagman v. Lee, 457 A.2d 401, 405 (D.C.) (upholding award of punitive

damages where attorney, acting as escrow agent for one potential purchaser of a house, used that

person's deposit to enable another person to buy the house), cert. denied, 464 U.S. 849 (1983).

Turning to the principal question before uswhether the district court erred in granting

judgment to Pelland and his law firm on the Hendrys' claim for breach of fiduciary dutywe begin

by noting the limited nature of the parties' arguments on appeal. First, in challenging the judgment,

the Hendrys contend only that they presented sufficient evidence to justify a favorable jury verdict

on their fiduciary duty claim insofar as they sought disgorgement of legal fees. They do not argue

that they presented adequate evidence to support their $2 million claim for compensatory damages.

Second, the parties agree that in order to prevail in a fiduciary duty claim for disgorgement of legal

fees, clients need to present evidence establishing that their lawyer breached a fiduciary duty to them.

The parties disagree about only two issues: whether the Hendrys presented such evidence; and

whether, in addition to establishing that their attorney breached his duty, the Hendrys also needed to

prove that the breach caused them injury.

As for the first issue, we agree with the Hendrysthat their evidence that Pelland violated one

of the rules of the District of Columbia Code of Professional Responsibility wassufficient to support

their claim that he violated his common law fiduciary duty. While not holding that the ethical rules

are co-extensive with an attorney's fiduciary duties, the District of Columbia Court of Appeals in

Griva v. Davison, 637 A.2d 830 (D.C. 1994) clearly ruled that "a violation of the Code of

Professional Responsibility or of the Rules of Professional Conduct can constitute a breach of the

attorney's common law fiduciary duty to the client." Id. at 846-47 (emphasis added). In particular,

and significantly for this case, the court treated an alleged violation of Disciplinary Rule 5-

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105prohibiting a lawyer from representing multiple clients "if the exercise of his independent

professional judgment ... would be likely to involve him in representing differing interests" unless "it

is obvious that he can adequately represent the interest of each [client] and ... each consents to the

representation after full disclosure," D.C. CODE OF PROFESSIONALRESPONSIBILITY DR 5-105(B) to

(C)as equivalent to a breach of an attorney's fiduciary duty. See Griva, 637 A.2d at 837-41, 846-

48. The Griva court's ruling that a conflict of interest may violate not only ethical rules, but also an

attorney's common law fiduciary duties, is far from novel. See American-Canadian Oil & Drilling

Corp. v. Aldridge & Stroud, Inc., 373 S.W.2d 148, 150-51 (Ark. 1963); Kidney Ass'n of Oregon,

Inc. v. Ferguson, 843 P.2d 442, 446-47 (Or. 1992). As Pelland recognizes, a basic fiduciary

obligation of an attorney is the duty of "undivided loyalty," which is breached when an attorney

represents clients with conflicting interests. Brief for Appellees at 9-10 (citing 1 RONALD E.MALLEN

& JEFFREY M. SMITH, LEGAL MALPRACTICE, § 11.1, at 633 (3d ed. 1989)).

The Hendrys' expert testified that Pelland violated DR 5-105 because his representation of

all five owners of the property put him in the "impossible" position of serving individuals with

conflicting interests: the mother, anxious to reach a settlement with the developer that would allow

her to keep a house on the land; the son and the daughter, opposed to the plan to build a residential

development because it would destroy the trees on the property; and the two infant grandchildren,

whose primary interest wasin maximizing the long-term value of the property. The son testified that

the lawyer never discussed the possible conflicts of interest with him. Viewed most favorably to the

Hendrys, this evidence was sufficient for a reasonable jury to find that Pelland violated DR 5-105,

thereby breaching his fiduciary duty of loyalty.

We also agree with the Hendrys that, to the extent they sought disgorgement of legal fees,

they needed to prove only that Pelland breached his duty of loyalty, not that his breach proximately

caused theminjury. Although we have found no District of Columbia cases precisely on point, courts

in other jurisdictions have held that clients must prove injury and proximate causation in a fiduciary

duty claim against their lawyer if they seek compensatory damages, not if, as here, they seek only

forfeiture of legal fees. Compare Buch v. Holliday, 803 S.W.2d 56, 60 (Mo. Ct. App. 1990) (ruling

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that clients are required to show injury and causation in suit for compensatory damages) with

Gilchrist v. Perl, 387 N.W.2d 412, 415 (Minn. 1986) (holding that clients are not required to show

injury in seeking forfeiture of fees); RESTATEMENT (SECOND) OF AGENCY § 469 cmt. a (1958)

(stating that an agent is not entitled to compensation for disloyal conduct, even if no harm to

principal); RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 49 cmt. d (Tentative Draft

No. 4, 1991) (noting that forfeiture may be appropriate absent a showing of harm). Even courts that

sometimes do require a showing of injury and causation in claimsseeking only forfeiture of legalfees

have stated that it is not necessary when the clients' claim is based, again as here, on a breach of the

duty of loyalty. See, e.g., Frank v. Bloom, 634 F.2d 1245, 1257-58 (10th Cir. 1980) (stating that

forfeiture is appropriate, absent showing of injury, where attorney represents clients with direct

conflict of interest).

Recent opinions of the District of Columbia Court of Appealslend support to this distinction

between claims for compensatory damages and claims for disgorgement of legal fees. In one case

where clients sought compensatory damages, the court described the elements of the clients'

negligence claim as including "a causal relationship between the violation and the harm complained

of," Mills v. Cooter, 647 A.2d 1118, 1123 (D.C. 1994), stating that its disposition of the negligence

claim "applie[d] with equal force to the [clients'] claim of breach of fiduciary duty," id. at 1120 n.6

(emphasis added). In another case, where the clients sought not compensatory damages but

forfeiture of legal fees, the court relied upon decisions where the clients did not need to prove injury

or causation. See Griva, 637 A.2d at 847 (citing Jeffry v. Pounds, 136 Cal. Rptr. 373, 377 (Cal. Ct.

App. 1977); In re Hansen, 586 P.2d 413, 417 (Utah 1978)). 

The different treatment of compensatory damages and forfeiture of legal fees also makes

sense. Compensatory damages make plaintiffs whole for the harms that they have suffered as a result

of defendants' actions. See RESTATEMENT (SECOND) OF TORTS § 903, cmt. a (1977). Clients

therefore need to prove that their attorney's breach caused them injury so that the trier of fact can

determine whether they are entitled to any damages. Forfeiture of legal fees serves several different

purposes. It deters attorney misconduct, a goal worth furthering regardless of whether a particular

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client has been harmed. See Gilchrist, 387 N.W.2d at 416; RESTATEMENT (THIRD) OF THE LAW

GOVERNING LAWYERS § 49 cmt. b (Tentative Draft No. 4, 1991) (noting that forfeiture deters

misconduct). It also fulfills a longstanding and fundamental principle of equitythat fiduciaries

should not profit from their disloyalty. See, e.g., Woods v. City Nat'l Bank & Trust Co., 312 U.S.

262, 268-69 (1941); RESTATEMENT (SECOND) OF AGENCY § 469 cmt. a (1958). And, like

compensatory damages, it compensates clients for a harm they have suffered. See Gilchrist, 387

N.W.2d at 416; Kidney Ass'n of Oregon, Inc., 843 P.2d at 447. Unlike other forms of compensatory

damages, however, forfeiture reflects not the harms clientssuffer fromthe tainted representation, but

the decreased value of the representation itself. Because a breach of the duty of loyalty diminishes

the value of the attorney's representation as a matter of law, some degree of forfeiture is thus

appropriate without further proof of injury. See Gilchrist, 387 N.W.2d at 416-17.

We thus conclude that, under District ofColumbia law, clientssuing their attorney for breach

ofthe fiduciarydutyofloyalty and seeking disgorgement oflegalfees astheirsole remedy need prove

only that their attorney breached that duty, not that the breach caused them injury. Because the

Hendrys presented evidence that Pelland breached his duty of loyalty by violating DR 5-105, they

were entitled to have their fiduciary duty claim for disgorgement of legal fees go to the jury. The

district court therefore erred in granting judgment for Pelland and his firm.

In reaching this conclusion, we have not addressed two issues of District of Columbia law

relating to the Hendrys' fiduciary duty claim. Because the testimony regarding DR 5-105 is adequate

to support our holding, we have not considered whether violations of two other ethical rules

mentioned by the Hendrys' expertDR 6-101, requiring an attorney to act competently, and DR 7-

101, requiring an attorney to represent clients zealously, see D.C. CODE OF PROFESSIONAL

RESPONSIBILITY DR 6-101, 7-101can also constitute breaches of an attorney's common law

fiduciary duties. Nor have we addressed the extent of forfeiture to which the Hendrys might be

entitled if, at a new trial, they succeed in proving that Pelland breached his duty of loyalty. Some

courts have suggested that attorneys must forfeit all fees earned in their tainted representation of a

client,see Silbiger v. Prudence Bonds Corp., 180 F.2d 917, 920-21 (2d. Cir.) (dictum), cert. denied,

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340 U.S. 831 (1950); American-Canadian Oil & Drilling Corp., 373 S.W.2d at 150 (dictum);

others have ruled that lawyers must forfeit all fees earned in the such representation after the breach

occurred; see Financial Gen. Bankshares, Inc. v. Metzger, 523 F. Supp. 744, 773 (D.D.C. 1981)

vacated on other grounds, 680 F.2d 768 (D.C. Cir. 1982); Jeffry, 136 Cal. Rptr. at 377; while still

others have held that the extent of forfeiture depends upon the facts and circumstances of the case,

see Gilchrist, 387 N.W.2d at 416-17 (holding that clients are always entitled to nominal damages,

but full forfeiture requires evaluation ofseveral factors); Kidney Ass'n of Oregon, Inc., 843 P.2d at

446-47 (discussing reduction as well as outright denial of fees); Perez v. Pappas, 659 P.2d 475, 480

(Wash. 1983) (complete forfeiture may be available in "appropriate" circumstances).

The final issue in this casethe court's ruling on the law firm's counterclaimturns on the

proposition that clients may defend a claim by their lawyer for unpaid legal fees by proving that their

attorney breached a fiduciary duty. See Griva, 637 A.2d at 847 (citing Jeffry, 136 Cal. Rptr. at 377,

in which the court ruled that the client could defend his lawyer's suit for unpaid fees by arguing that

the lawyer breached hisfiduciary duty); 1 MALLEN & SMITH,supra, § 11.24 at 698-99. Because the

Hendrys presented sufficient evidence for a jury to find that Pelland violated his fiduciary duty, the

district court erred in prohibiting them from using this argument as a defense to the counterclaim.

III.

We affirm the district court's ruling on punitive damages, vacate the court's ruling granting

judgment as a matter of law to Pelland and his firm on the Hendrys' fiduciary duty claim, and vacate

its ruling and judgment on the counterclaim for legal fees. We remand to the district court for a new

trial on the Hendrys' fiduciary duty claim and on the law firm's counterclaim.

So ordered.

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