Opinion ID: 1979795
Heading Depth: 1
Heading Rank: 2

Heading: Review of prior cases

Text: A review of our case law on fee forfeitures, leading up to and including our two recent decisions also involving attorney Perl's handling of similar Dalkon Shield claims, illustrates our long-settled rule that an attorney guilty of actual fraud forfeits his entire fee. As first stated in Davis v. Swedish-American National Bank, 78 Minn. 408, 418, 81 N.W. 210, 212-13 (1899): [F]or the rule is that, if an attorney is guilty of actual fraud or bad faith towards his client in the matter of his employment, he is not entitled to any pay for his services. The basis of this rule is good morals and a sound public policy, and it should be enforced in all cases where the fraud of the attorney is established by clear and satisfactory proof. The trial court having found that the attorneys of the assignee were guilty of actual fraud and bad faith in the matter of their employment, it follows that they are not entitled to any compensation for their services   . [Emphasis added.] See also Faber v. Enkema, 180 Minn. 493, 231 N.W. 410 (1930) (attorney who is unfaithful to his client and guilty of fraud forfeits right to compensation); Blackey v. Alexander, 156 Minn. 478, 482, 195 N.W. 455, 456 (1923) (attorney confessedly guilty of intentional fraud forfeited all his compensation). In In re Estate of Lee, 214 Minn. 448, 9 N.W.2d 245 (1943), involving a blatant conflict of interest situation, this court stressed the strict fidelity required of an attorney and said, When a breach of faith occurs, the attorney's right to compensation is gone. Id. at 460, 9 N.W.2d at 251. The attorney was denied any fees, even on a quantum meruit basis, the court stating the evidence adequately supported the trial court's finding of a lack of good faith on the part of the attorney. Later, in Anderson v. Anderson, 293 Minn. 209, 197 N.W.2d 720 (1972), an attorney acted as a double agent and knowingly participated in a scheme to deprive two beneficiaries of their share in an estate. We said the attorney forfeits his compensation even if the client-principal cannot prove actual injury to himself or that the agent committed an intentional fraud. Id. at 216, 197 N.W.2d at 724. The foregoing cases, all involving actual fraud and a single client's claim, stand for the proposition that actual fraud results in a total fee forfeiture. On the other hand, in a case not involving actual fraud or bad faith, we allowed a law firm to collect its fee notwithstanding the client's asserted defense that the attorney failed in his duty to communicate certain information to the client. Selover v. Hedwall, 149 Minn. 302, 184 N.W. 180 (1921). We said there was nothing from which we can infer that they [the lawyers] were guilty of either fraud or bad faith toward him [the client], or that he sustained any loss by reason of their failure to communicate such information. Id. at 307, 184 N.W. at 181. Upon this background, in 1982 we decided Rice v. Perl, 320 N.W.2d 407 (Minn. 1982) ( Perl I ), which was our first decision to consider the matter of Perl and his Dalkon Shield clients. There we held Perl and his law firm breached their fiduciary obligation to a client, Cecelia Rice, a woman whose Dalkon Shield settlement was negotiated by Perl, by failing to disclose that Aetna's adjuster, Willard Browne, was simultaneously employed by the Perl law firm on other matters. We held that an attorney who breaches a fiduciary duty to a client forfeits his right to compensation without any requirement that the client prove actual harm, and we affirmed summary judgment for Rice for the entire fee. Id. at 411. While accepting Perl's contention that his nondisclosure was unintentional and conceding that our prior forfeiture cases all involved overt wrongful conduct, we nevertheless approved the fee forfeiture, observing that the law has traditionally been unyielding in its assessment of penalties when a fiduciary    has breached any of his obligations. Id. We quoted from Selover on an attorney's duty to communicate to his client any information affecting the client's interests but without mentioning that in Selover the attorney was permitted to have his fees. Id. at 410. Two years later the matter came before us again in Perl v. St. Paul Fire & Marine Insurance Co., 345 N.W.2d 209 (Minn.1984) ( Perl II ), where we held: (1) forfeiture of attorney fees was an award of money damages within the coverage of Perl's malpractice insurance policy; (2) the policy's fraudulent act exclusion did not apply to constructive fraud; (3) the policy's exclusion for exemplary or punitive damages was inapplicable; and (4) insurance covering forfeiture for one's own breach of fiduciary duty is contrary to public policy, but coverage for the law firm's vicarious liability is not. By dictum in footnote 5 of the opinion we commented on the measure of damages: Ordinarily it would seem breach of the fiduciary duty results in complete forfeiture damages, but it is unclear if there may be exceptions in some situations where actual fraud is absent, where no actual damages are sustained, and where there are multiple client claims. If forfeiture of fees for breach of a fiduciary duty are damages, as we here hold, and if these damages have a punitive content, as we here declare, it is at least arguable that the trier of fact in awarding such damages might consider much the same factors as the trier of fact considers in making a standard punitive damages award. See Minn.Stat. § 549.20, subd. 3 (1983). 345 N.W.2d at 214 n. 5.