Opinion ID: 835548
Heading Depth: 2
Heading Rank: 2

Heading: Privilege Against Joint Liability for a Lawyer Assisting a Client's Breach of Fiduciary Duty

Text: This court has not considered previously what privileges, if any, protect a person from liability for substantially assisting another in a breach of fiduciary duty. However, several cases have considered privileges as they relate to claims for interference with contractual relations brought against advisors or agents who acted on behalf of another person or entity. [9] Those cases are instructive, because, like the present case, they involve claims against a person for actions on behalf of a client or principal that allegedly harmed a third party. In Wampler v. Palmerton, 250 Or. 65, 439 P.2d 601 (1968), the plaintiff sued a corporation's financial advisors for intentional interference with contractual relations for advising the corporation to breach its contract with the plaintiff. This court noted that the advisors owed a duty of advice and action to the corporation and that imposing liability on those advisors would paralyze the corporation's ability to act and to secure advice on how to act. Id. at 74-75, 439 P.2d 601. The court therefore recognized a privilege against liability for corporate advisors who act in good faith and for the benefit of the corporation. Id. at 75, 439 P.2d 601. Indeed, the court noted, the privilege protects the advisor from liability even though plaintiff argues that the defendants intended to cause the corporation to take an unfair advantage of the plaintiff by means of the breach of contract. Id. at 76, 439 P.2d 601. This court followed Wampler in Straube v. Larson, 287 Or. 357, 600 P.2d 371 (1979), where it considered an intentional interference claim by a radiologist against a hospital chief administrator who had recommended that the hospital suspend the radiologist's hospital privileges and other medical staff members who allegedly had conspired in seeking the suspension. The defendants claimed that they had acted to fulfill their duty to the hospital to ensure the proper care for patients. Id. at 369, 600 P.2d 371. This court applied the reasoning of Wampler and concluded that, if the defendants had acted in good faith and in the hospital's interest, then they had what amount[ed] to the application of a qualified privilege against liability. Id. at 369-71, 600 P.2d 371. [10] The court also addressed the issue of which party had the burden of proving that the defendants' acts came within the scope of the privilege and held that the plaintiff had the burden of negating [that] qualified privilege    as part of his affirmative case. Id. at 371, 600 P.2d 371. In Welch v. Bancorp Management Advisors, 296 Or. 208, 214, 675 P.2d 172 (1983), this court again considered the issue of when an agent can be liable in tort for actions that the agent takes on behalf of its principal and that cause harm to a third party. In that case, a real estate developer alleged that a lender had agreed to provide financing for a project but had breached that agreement based on misrepresentations and false advice given to the lender by its investment committee. Id. at 211, 675 P.2d 172. The developer sought to recover from the investment committee members for tortious interference with the financing agreement. Relying on its earlier decisions in Wampler and Straube, this court held that the investment committee had been acting as the agent of the lender and therefore was immunized from tort liability if its actions had been within the scope of its authority: An agent acting as a financial advisor is thus privileged to interfere with or induce breach of the principal's contracts or business relations with third parties, as long as the agent's actions are within the scope of his employment and taken with an intent to further the best interests of the principal. Welch, 296 Or. at 218, 675 P.2d 172; see also id. at 216-17, 675 P.2d 172 ([T]he proper test is whether the agent acts within the scope of his authority and with the intent to benefit the principal.). This court, in the cases described above, protected from liability defendants who owed duties to an entity or person and who, in the course of performing those duties, harmed a third party. This court recognized a qualified privilege in those cases because it was necessary to protect important relationships between the defendant and the entity or personthe financial advisor and the corporation in Wampler, the staff and the hospital in Straube, and the investment committee and the lender in Welch. That is, this court, in exercising its common-law authority to define tortious conduct, implicitly concluded that the effective performance of the duties arising from those relationships required that the person performing those duties have a qualified privilege from tort liability. [11] The principle underlying the cases just discussedthat, for individuals and corporations to obtain the advice and assistance that they must receive from their agents, the agents must have some protection from tort liability to third partiesassists us in determining the rule that should be applied in this case. Not every relationship between a person who breaches a contract or a fiduciary duty and one who substantially assists in such a breach necessarily justifies recognition of a privilege against liability. However, we think that the lawyer-client relationship is one that does. [12] That is true, in our view, because safeguarding the lawyer-client relationship protects more than just an individual or entity in any particular case or transaction; it is integral to the protection of the legal system itself. See Restatement (Third) of the Law Governing Lawyers ( Restatement of Lawyers ) ch 2, Introductory Note (2000) (citing the importance to the legal system of faithful representation); id. § 121 comment b (conflict rules protect interests of the legal system by preventing compromise of process of adversary litigation). Myriad business transactions, as well as civil, criminal, and administrative proceedings, require that the client have the assistance of a lawyer. And a variety of doctrines, from the rules against conflicts of interest to the confidential nature of lawyer-client communications, demonstrate the ways in which the legal system protects the lawyer-client relationship. Moreover, as was true in Wampler, Straube, and Welch, a third party's claim against the lawyer that puts the lawyer at odds with the client will compromise the lawyer-client relationship. A lawyer who is sued for substantially assisting a client's breach of fiduciary duty becomes subject to divided loyalties. As this court has recognized, lawyers cannot serve their clients adequately when their own self-interestin these examples, the need to protect themselves from potential tort claims by third partiespulls in the opposite direction. See, e.g., In re Jeffery, 321 Or. 360, 898 P.2d 752 (1995) (conflict of interest for lawyer to represent client in criminal case in which lawyer also was implicated); see also Restatement of Lawyers § 121 comment b (conflict compromises client's expectation of effective representation). Moreover, allowing a claim against the lawyer may raise issues of lawyer-client privilege, if the preparation of an adequate defense for the lawyer would require the disclosure of privileged communications. Cf. State ex rel OHSU v. Haas, 325 Or. 492, 500, 942 P.2d 261 (1997) (purpose of lawyer-client privilege `is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice' (quoting Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981))); Restatement of Lawyers § 121, comment b (conflict rules prevent use of confidential client information against client's interest); see also ORS 9.460(3) (lawyer shall [m]aintain the confidences and secrets of the attorney's clients   ). To summarize the discussion above, this court's earlier decisions hold that a person may be jointly liable with another for substantially assisting in the other's breach of a fiduciary duty owed to a third party, if the person knows that the other's conduct constitutes a breach of that fiduciary duty. Granewich, 329 Or. at 57, 985 P.2d 788. Our tort case law also makes clear, however, that, if a person's conduct as an agent or on behalf of another comes within the scope of a privilege, then the person is not liable to the third party. In this case, we extend those well-recognized principles to a context that we have not previously considered and hold that a lawyer acting on behalf of a client and within the scope of the lawyer-client relationship is protected by such a privilege and is not liable for assisting the client in conduct that breaches the client's fiduciary duty to a third party. Accordingly, for a third party to hold a lawyer liable for substantially assisting in a client's breach of fiduciary duty, the third party must prove that the lawyer acted outside the scope of the lawyer-client relationship. Several features of the rule regarding the circumstances in which a lawyer's conduct may be privileged are particularly important. First, the rule places the burden on the plaintiff to show that the lawyer was acting outside the scope of the lawyer-client relationship. See Straube, 287 Or. at 371, 600 P.2d 371 (plaintiff has burden of negating qualified privilege). Second, the rule protects lawyers only for actions of the kind that permissibly may be taken by lawyers in the course of representing their clients. It does not protect lawyer conduct that is unrelated to the representation of a client, even if the conduct involves a person who is a client. Because such unrelated conduct is, by definition, outside the scope of the lawyer-client relationship, no important public interest would be served by extending the qualified privilege to cover it. See Welch, 296 Or. at 216-17, 675 P.2d 172 ([T]he proper test [for a privilege against liability for interference with contract] is whether the agent acts within the scope of his authority and with the intent to benefit the principal.) For the same reason, the rule does not protect lawyers who are representing clients but who act only in their own self-interest and contrary to their clients' interest. Similarly, this court would consider actions by a lawyer that fall within the crime or fraud exception to the lawyer-client privilege, OEC 503(4)(a), and Rule of Professional Conduct 1.6(b)(1), to be outside the lawyer-client relationship when evaluating whether a lawyer's conduct is protected. The Court of Appeals, in this case, like other courts that have considered similar claims by nonclients against lawyers, struggled to reconcile the client's need for a lawyer's confidentiality, advice, and assistance with the desire to hold lawyers accountable for affirmative conduct that actually furthers the client's breach of fiduciary duty, done by the attorney with knowledge that he or she is furthering the breach. Reynolds, 197 Or.App. at 576, 107 P.3d 52. [13] For that reason, the court held that, although a lawyer could be jointly liable under the principles of Restatement, section 876(a) and (b), for assisting a client that breached its fiduciary duty, a strict and narrow construction best protects the attorney-client relationship without conferring on attorneys a license to help fiduciaries breach their duties. Id. The Court of Appeals' strict and narrow construction formulation, however, provides insufficient guidance to lawyers and lower courts. Similarly, the court's distinction between a lawyer's advice to a client and the lawyer's other assistance to a clientsuch as drafting a letter or an agreementfails to recognize the lawyer's role in actual transactions. In this case, for example, Schrock's right to receive legal advice from Markley is unduly cramped if Markley's potential tort liability to third parties prevents him from drafting transactional documents or making telephone calls necessary for Schrock to act on that advice. For that reason, we think that a test for liability that focuses on whether the lawyer's actions fall outside the scope of the lawyer's representation of his or her client provides a better balance between the important interests at stake. Courts in other jurisdictions also have limited a lawyer's joint liability for the wrongdoing of his or her clients to protect the lawyer-client relationship. In Chem-Age Industries, Inc. v. Glover, 2002 SD 122, 652 N.W.2d 756, 774-75 (2002), the South Dakota Supreme Court concluded that a lawyer could not be jointly liable for aiding a client's breach of fiduciary duty if the lawyer was [m]erely acting as a scrivener for a client and that liability could be imposed only if the lawyer rendered `substantial assistance' to the breach of duty, not merely to the person committing the breach. 652 N.W.2d at 774. The Massachusetts Supreme Judicial Court rejected claims by trust beneficiaries that a trustee's lawyers could be liable for assisting the trustee's breach of fiduciary duty, holding that the beneficiaries had to show that the [lawyer] knew of the breach and actively participated in it such that he or she could not reasonably be held to have acted in good faith. Spinner v. Nutt, 417 Mass. 549, 556, 631 N.E.2d 542, 546 (1994). In a case involving the liability of an accountant for aiding and abetting a client's breach of fiduciary duty, the Minnesota Supreme Court, quoting Restatement section 876(b), noted that most courts have recognized that `substantial assistance' means something more than the provision of routine professional services and found that allegations that alleged only that the accountant provides such routine services were insufficient to meet the substantial assistance requirement. Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 189 (Minn.1999). In our view, the test that we hold applicable herewhether the lawyer's conduct fell outside the permissible scope of the lawyer-client relationshipoften will lead to the same result as the tests adopted in the cases described above. It does so, however, in a more predictable and useful way, because it focuses on the scope of the lawyer-client relationshipand the legal rules, such as OEC 503(4)(a), that help define that scope rather than on the fine line between advice and assistance or between substantial assistance and other assistance. We acknowledge that the test does not identify a bright line between liability and immunity, but it nevertheless uses concepts tied directly to the lawyer's role in representing the client and existing sources of law regarding the scope of that role. [14]