Court Opinion

ID: 9741923
Source: CourtListenerOpinion
Date Created: 2023-08-26 21:04:17.123957+00
Date Added: 2024-06-11T07:24:27.205474
License: Public Domain

WAHL, Justice,
dissenting.
We have come full circle in the latest in a long line of cases involving the actions of attorney Norman Perl.1 We are asked now to determine whether an indemnification and “hold harmless” agreement entered into between an attorney and his law firm extinguishes the subrogation rights of the firm’s insurer for claims paid as a result of the attorney’s breach of fiduciary duty to his clients. Because the holding of the majority, in answering that question, departs from the principles set forth in our previous decisions in this matter, I respectfully dissent.
In Rice v. Perl, 320 N.W.2d 407 (Minn.1982), this court held that attorney Perl had breached his fiduciary duty to his client by failing to disclose to his client his non-adversarial relationship with claims adjuster Willard Browne with whom he negotiated his client’s settlement.2 We recognized that:
* ⅜ * the law has traditionally been unyielding in its assessment of penalties when a fiduciary, or trustee, or agent has breached any of his obligations. The underlying policy is a strong one. It recognizes that insuring absolute fidelity to the principal’s (or beneficiary’s) interests is fundamental to establishing the trust necessary to the proper functioning of these relationships.
Rice, 320 N.W.2d at 411.
Because Perl and his law firm breached their fiduciary duty to their client, they were required to forfeit the fees obtained from that client. Id.
In Perl v. St. Paul Fire & Marine Insurance Company, 345 N.W.2d 209 (Minn.1984) this court unequivocally held that, while the law firm was entitled to indemnity from its malpractice insurer for the fees required to be forfeited in Rice, insurance coverage for Perl himself was void as against public policy. We stated that:
The professional conduct of attorneys has always been a matter of prime public concern to this court. Thus it is a basic rule that an attorney must represent the client with undivided loyalty and must disclose to the client any material matter which might impair that loyalty or affect the client’s interests. * * * For breach of this duty, the attorney forfeits his or her right to compensation.
Perl v. St. Paul Fire and Marine Insurance Co., 345 N.W.2d 209, 215 (Minn.1984).
We recognized that forfeiture of fees would be rendered meaningless if the attorney could recoup the forfeited fees through *669insurance payments. The court flatly stated:
In view of these concerns, so strongly expressed and felt by this court, we believe that insurance coverage which purports to cover a fee forfeiture by an attorney for his or her own breach of a fiduciary duty, such as the one here, should not be enforceable as a matter of public policy.
Id. at 215-16.
In yet another case involving attorney Perl and his obligation to forfeit fees, we noted that “forfeiture damages are both reparational and admonitory.” Gilchrist v. Perl, 387 N.W.2d 412, 416 (Minn.1986). In that ease we recognized that, “undeniably, the predominant functions of any fee forfeiture are punishment and deterrence.” Id.
The result reached by the majority in the instant ease defeats the very purpose of fee forfeiture and renders our holding in Perl v. St. Paul Co. meaningless. Despite our protestations to the contrary in that case, it has come to pass through the operation of the indemnification agreement of which we were not advised at that time, that “one effect of the forfeiture, to penalize the individual attorney who did the wrong, has been defeated because the insurer has paid the judgment, albeit on behalf of Perl’s professional corporation rather than Perl himself.” 345 N.W.2d at 216.
We have long recognized that:
Where a person is able to insure himself against punishment he gains a freedom of misconduct inconsistent with the establishment of sanctions against such misconduct. It is not disputed that insurance against criminal fines or penalties would be void as violative of public policy. The same policy should invalidate any contract of insurance against the civil punishment that punitive damages represent.
Wojciak v. Northern Package Corp., 310 N.W.2d 675, 680 (Minn.1981), citing Northwestern Nat. Cas. Co. v. McNulty, 307 F.2d 432, 440-41 (5th Cir.1962). In recognition of the public policy concerns described in Wojciak, we denied Perl insurance coverage for fees he was required to forfeit as a result of his misconduct. These same public policy concerns require that Perl not receive indirect indemnification by way of our approving the foreclosure of the insurer’s right to subrogation.
In Perl v. St. Paul Co., this court sent a clear message to the attorneys of this state that an attorney committing misconduct, and not the insurer, will bear the financial burden of repayment of forfeited fees. 345 N.W.2d 209. Today this message is obliterated as the majority’s holding allows Perl to escape this financial burden by allowing the burden to be placed on the insurer. Indeed, the result reached by the majority removes the financial burden from Perl and places it upon all of the attorneys of this state, who will pay the cost through increased malpractice insurance premiums. This result reflects neither justice nor sound public policy.
I would hold, in accordance with the principles set forth in Perl v. St. Paul Fire and Marine Insurance Co., 345 N.W.2d 209 (Minn.1984), that the indemnification agreement between Perl and his law firm is void as against public policy with regard to the fees forfeited by Perl by reason of his breach of fiduciary duty to his clients, and that St. Paul Co. is entitled to enforce its right of subrogation against attorney Perl.
I would answer the certified question in the negative.
KELLEY, Justice. I join in the dissent of Justice Wahl.
COYNE, Justice. Took no part in the consideration or decision of this case.

. Rice v. Perl, 320 N.W.2d 407 (Minn.1982); Perl v. St. Paul Fire & Marine Insurance Co., 345 N.W.2d 209 (Minn.1984); In re N.P., 361 N.W.2d 386 (Minn.1985); Gilchrist v. Perl, 387 N.W.2d 412 (Minn.1986); In re Perl, 394 N.W.2d 487 (Minn.1986); In Re Perl, 395 N.W.2d 921 (Minn. 1986); In Re Perl, 407 N.W.2d 678 (Minn.1987).

. During the time period from 1976 through 1979 when negotiating settlements with Perl for Rice and other clients in Daikon Shield claims for Aetna, A.H. Robins’ insurer, Browne was simultaneously employed and paid as a claims adjuster by Aetna and by the Perl firm on a part time basis. Rice v. Perl, 320 N.W.2d at 411. It is beside the point that 8 years later the referee in In Re Perl, 407 N.W.2d 678, 680, found that "it was not shown that Browne was paid any amounts by Perl for settling Daikon Shield cases” and that “[it] also does not appear that the clients were prejudiced in these settlements.” 407 N.W.2d 678, 680 (Minn.1987). What matters is that the clients had the right to this information before proceeding with settlement negotiations. As Justice Otis succinctly noted in Rice v. Perl, “If Rice had known, she could have decided to engage another attorney to represent her, or might have decided not to go forward at all. The potential risks to her could be serious. If Aetna later rescinded the agreement, Rice’s reputation might suffer simply from having been a party, albeit an innocent party, to this enactment. She was unfairly put in some jeopardy by her fiduciary. An attorney has an obligation to prevent placing his client in a position which might well taint a settlement transaction. The profession’s standards of integrity demand no less." 320 N.W.2d at 411.