Opinion ID: 2119633
Heading Depth: 1
Heading Rank: 2

Heading: whether trewin breached his fiduciary duty to the grosheks

Text: ¶ 12 To support their claim for breach of fiduciary duty, the Grosheks must satisfy three elements: (1) that Trewin owed the plaintiffs a fiduciary duty, (2) that Trewin breached that duty, and (3) that that breach caused the Grosheks damage. See Berner Cheese Corp. v. Krug, 2008 WI 95, ¶ 40, 312 Wis.2d 251, 752 N.W.2d 800. The circuit court held that the Grosheks had proved that Trewin breached his fiduciary duty, and the court of appeals determined that the circuit court's findings in support of that determination were not clearly erroneous, and were sufficient to establish that breach. ¶ 13 Trewin maintains that the elements are not met because nothing he did while he had an attorney-client relationship with the Grosheks constituted a breach of fiduciary duty, and because such a duty no longer existed at the time he purchased the Grosheks' land because the attorney-client relationship ceased when his law license was suspended on August 31, 2004. Specifically, he argues that an attorney has no fiduciary duty to former clients, and at the time of the property sale, the Grosheks were former clients. Because the bankruptcy filing made the Grosheks' financial distress a matter of public knowledge, Trewin argues that there is no basis for concluding that he used confidential information gained as the Grosheks' counsel in negotiating the purchase. He further argues that there was no injury to the Grosheks because the underlying cause of the sale of their landtheir financial difficultiesdid not result from his actions; in other words, they would have lost the farm whether he bought it or not. As for the documents signed by the Grosheks on August 30, 2004, Trewin argues that they imposed no legal obligation on the Grosheks and that he never sought to enforce them; therefore, they cannot serve as the basis for a finding of breach of fiduciary duty. ¶ 14 The Grosheks argue that Trewin remained their attorney and thus retained a fiduciary duty to them well beyond August 31, 2004, the date upon which his law license was suspended. They point to subsequent bills for legal services and the language of the waiver of conflict of interest, which they construe as implying that the attorney-client relationship would be ongoing and would be affected in the future only if they failed to make lease payments. They alternatively argue that agency law and rules of professional conduct impose an obligation on Trewin not to use information against a former client, and that those principles support a finding that Trewin had a continuing fiduciary duty to the Grosheks even if the attorney-client relationship had ended. Additionally, they argue that the information Trewin used did indeed include confidential information about the Grosheks far beyond what would have been publicly disclosed in bankruptcy filings, such as their neighbors' interest in purchasing part of the property, their own understanding of related tax liabilities, and other factors that ultimately played a role in the sale of the land. ¶ 15 As the court of appeals did, we focus on the findings of fact the circuit court made, and like the court of appeals, we conclude that they are supported by the evidence and reasonable inferences, and are not clearly erroneous. For purposes of determining whether Trewin breached his fiduciary duty to the Grosheks, we need not determine precisely when the attorney-client relationship ceased to exist because Trewin acknowledges that an attorney has a fiduciary duty to an existing client, and until at least August 31, 2004, the Grosheks were undisputedly Trewin's clients. The circuit court held that there was a fiduciary duty at that time. The second element for liability is whether the duty was breached. In Zastrow v. Journal Communications, Inc., 2006 WI 72, ¶ 30, 291 Wis.2d 426, 718 N.W.2d 51, this court said, A breach of the duty of loyalty imports something different from mere incompetence; it connotes disloyalty or infidelity. The Fiduciary Duty of Care, supra, at 183 (citation omitted). At its core, a fiduciary's duty of loyalty involves a state of mind, so that a claimed breach of that duty goes beyond simple negligence. For example, a lawyer can breach his fiduciary duty of loyalty to a client by entering into a contract with a client without full disclosure that the contract will benefit the lawyer and potentially disadvantage the client. ¶ 16 The circuit court invoked the above language from Zastrow before concluding that based on the evidence presented, there was not full disclosure by Trewin to the Grosheks with regard to the agreements they signed on August 30, 2004. The circuit court observed that the agreements lacked such details as the purchase price, expected profit, and what the buy-back option entailed. The circuit court also focused on the information Trewin gained by virtue of his trusted position as the Grosheks' lawyer. The circuit court also cited a letter from Trewin dated August 24, 2004, to his lender; the letter shows that Trewin, days before signing an agreement with the Grosheks, made representations that were not disclosed to the Grosheks on August 30, 2004, and, to say the least, are not consistent with the August 30 agreement. [10] The circuit court also noted that at the time of the August 30 agreement, the Grosheks were unaware that they could buy back their property at a foreclosure sale ... [and] unaware of the concept of an assignment of a judgment. As the circuit court concluded, the information they needed, in short, was information for which they would depend on an attorney. Although a second attorney represented the Grosheks in the real estate transaction in November, [11] the circuit court found that he acted primarily as a scrivener in this whole thing, and [he] did not appear to be an actively engaged attorney, actively involved in the detailed representation that this type of a financial transaction would encounter. In fact, ultimately, his fees were paid through the closing transaction by Mr. Trewin paying $2,500 more for the property, all of which left the Court scratching its head on that testimony and that arrangement. ¶ 17 The circuit court also concluded that the Grosheks did not clearly understand the transaction based on the following evidence: one witness testified to Mrs. Groshek's shock when a For Sale sign went up on the property; and there was testimony that the Grosheks seemed to have understood the transaction to function as a lien on the property and to have a guaranteed buy-back option. As the court of appeals stated, [12] Trewin used his position of influence and the trust the Grosheks had in him to obtain a waiver of a conflict of interest and their signatures on an agreement to sell, which stated they had consulted an attorney. He did this without disclosing the potential benefits to him of the sale and the potential risks to them, and knowing they had not consulted another attorney.... If the Grosheks' signing of those documents on August 30 was not significant, why did Trewin have them do so? Why did he tell them, as they testified and the [circuit] court found, that they had to do so on that date? The reason, the court found and the evidence supports, is that he was taking advantage of their trust in him as their attorney to get as much of the transaction as possible accomplished before his license was suspended. ¶ 18 Such conduct, while Trewin was acting as the Grosheks' counsel, is hard to reconcile with the fiduciary duty of loyalty defined by this court in Zastrow: [13] This constraint on acting in one's own self-interest has been described as a fiduciary's duty of loyalty. However, the duty of loyalty is broader than simply requiring the fiduciary to refrain from acting in his own self-interest. For example, it also may require keeping a beneficiary's information confidential, and fully disclosing to the beneficiary all information relevant to the beneficiary's interest. Webster defines loyalty as tenacious adherence to principle and an obligation based on individual choice. Zastrow, 291 Wis.2d 426, ¶ 29, 718 N.W.2d 51 (citations omitted). We agree that Trewin's conduct here fits the example given in Zastrow entering into a contract with a client without full disclosure that the contract will benefit the lawyer and potentially disadvantage the clientand therefore constitutes a breach of fiduciary duty, including specifically the fiduciary duty of loyalty. ¶ 19 The final matter to address in regard to fiduciary duty is the question of whether the Grosheks proved that the breach caused damage. As noted above, Trewin argues that there was no damage here because it was clear that the Grosheks would not have been able to keep their property whether he was the buyer or someone else was. The Grosheks argue that Trewin's actions resulted in their receiving less for the property than they might have in a foreclosure auction or from another buyer. ¶ 20 We agree with the circuit court and the court of appeals that the Grosheks satisfied the damage element. The circuit court made repeated references to the advantage Trewin had, as a result of knowing the particulars of the Grosheks' financial situation, in setting the purchase price. The inference drawn by the circuit court, based on evidence of the value of the land and the purchase price, was that Trewin paid less for the land than another buyer would have paid. Trewin's attempts to focus attention further down the timeline cannot avail given the effort he made to obtain the Grosheks' signatures on August 30. As the court of appeals noted, Trewin had incentives for getting the signatures on those documents before his license was suspended: it is reasonable to infer that the agreement to sell was understood by at least the Grosheks to be binding; there is neither testimony nor documents providing evidence to the contrary. To infer otherwise would allow Trewin to benefit both from his acquiescence in the Grosheks' belief that the agreement was legally enforceable, and later, when the propriety of the transaction is questioned, from his claim that the agreement would never have been enforced. Therefore, given that Trewin took advantage of the trust and information he gained as the Grosheks' counsel in order to gain their signatures on the agreement to sell, the agreement itself gave rise to an injury, and the fact that its full force was felt only later is no reason to minimize its effect. ¶ 21 Accordingly, the circuit court did not err when it determined that the Grosheks had proved the existence of a duty, because Trewin was, at least through August 30, 2004, acting as their attorney. Nor did it err when it determined that the Grosheks proved a breach of that duty because Trewin failed to disclose fully what he was required to disclose to the Grosheks as his clients. Finally, the circuit court did not err when it determined that the Grosheks proved damage because that conclusion is supported by evidence of the value of the property and the fact that the amount paid was far less than its value. Rescission is an appropriate remedy when property is acquired in connection with a breach of fiduciary duty. Glojek v. Glojek, 254 Wis. 109, 116, 35 N.W.2d 203 (1948) (There can be no proper distinction between cases involving undue influence and breach of fiduciary relationship, on the one hand, and ordinary fraud in the inducement on the other, in so far as ... the right to rescind or otherwise to get specific relief is concerned.). [14] We therefore affirm the court of appeals as to the determination of breach of fiduciary duty and the appropriateness of granting rescission of the conveyance.