Lawyers Vicarious Liability for Clients Torts

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1 P R O F E S S I O N A L L I A B I L I T Y Civil Conspiracy By Ryan D. Bolick and Meagan I. Kiser Lawyers Vicarious Liability for Clients Torts Application of this developing and troubling theory should require a plaintiff to establish some level of particular wrongdoing or fault on the part of an attorney before joining that attorney as a defendant. The idea for this article arose amidst an unsettling discovery that North Carolina courts may find liability against an attorney, absent the establishment of all the necessary elements of a recognized tort as to the attorney, based upon that attorney s association with and representation of a tortfeasor. The court identified the concept as civil conspiracy and explained that it is a mode of vicarious liability that functions to associate the defendants together and perhaps liberalize the rules of evidence to the extent that under proper circumstances the acts and conduct of one might be admissible against all. Fox v. Wilson, 85 N.C. App. 292, 301, 354 S.E.2d 737, 743 (1987) (quoting Shope v. Boyer, 268 N.C. 401, 405, 150 S.E.2d 771, (1966) (emphasis added). Massachusetts and Arizona appear to have similar jurisprudence. Specifically, Massachusetts has recognized the right of a minority shareholder to sue the majority shareholders and their attorneys based upon the majority shareholder s breach of fiduciary duty to the minority shareholders. See Kurker v. Hill, 44 Mass. App. Ct. 184, 689 N.E.2d 833 (1998). Somewhat even more surprising, the Court of Appeals of Arizona allowed suit to proceed against the attorney of a defendant insurer because the attorney filed a declaratory judgment suit to challenge coverage under a policy that his client had issued to the insured. Chalpin v. Snyder, 220 Ariz. 413, 424, 207 P.3d 666, 677 (2009). Although not termed civil conspiracy in Chalpin, but rather aiding and abetting, the concept of holding an attorney liable for the actions of clients, without requiring allegations that the attorney committed some underlying tort, is the same. In Chalpin, the court reversed the trial court s dismissal of the claim against the insurer s counsel by holding that [w]hen a lawyer advises or assists a client in acts that subject the client to civil liability to others, those others may seek to hold the lawyer liable along with or instead of the client. Id. Similar theories are being argued and accepted in other jurisdictions, in many different forms, the discovery of which should concern practicing lawyers and the attorneys who defend them in malpractice suits. Ryan D. Bolick is a partner and Meagan I. Kiser is an associate in the Charlotte, North Carolina, office of Cranfill Sumner & Hartzog LLP. Mr. Bolick is a member of DRI s Professional Liability Committee and serves as a member of DRI s Jury Preservation Task Force. He is also vice chair of the Employment Law Section of the North Carolina Association of Defense Attorneys. Ms. Kiser is a member of the firm s general liability litigation group and is interested in issues related to legal malpractice defense DRI. All rights reserved. For The Defense n January 2011 n 41

2 P R O F E S S I O N A L L I A B I L I T Y The willingness of these jurisdictions to hold attorneys liable based upon their lawful representation of a client is a troubling trend that raises the following questions: Is it proper policy to hold attorneys liable for conduct arising from the scope of client representation, representation that is not unlawful or criminal in itself, but which ultimately results in some type of Certain jurisdictions have recognized defenses to civil conspiracy that acknowledge the special relationship between attorneys and their clients. harm to a third party? And, what defenses can be asserted in response to this type of claim? Some jurisdictions have answered the first question in the affirmative, making it easier for a plaintiff to join the defendant s attorney as a party- defendant to a tort claim. A theory that allows an attorney to be sued based on the theory that his or her professional acts were somehow utilized by a client in the commission of a tort, without a required showing of some level of culpability on the part of the attorney, goes against a foundation of public policy that demands that attorneys, in the exercise of their proper functions as such, shall not be civilly liable for their acts when performed in good faith and for the honest purpose of protecting the interest of their clients. Art Capital Group v. Neuhaus, 70 A.D.3d 605, 606, 896 N.Y.S. 2d 35, 37 (2010) (citing Hahn v. Wylie, 54 A.D.2d 629, 387 N.Y.S.2d 855 (1976)). Further, attorneys have an affirmative ethical duty to represent their clients zealously, a duty that seems at odds with this developing area of tort law. The ethical duty is described in the preamble to the Model Rules of Professional conduct: As a representative of clients, a lawyer performs various functions. As advisor, a lawyer provides a client with an informed understanding of the client s 42 n For The Defense n January 2011 legal rights and obligations and explains their practical implications. As advocate, a lawyer zealously asserts the client s position under the rules of the adversary system. As negotiator, a lawyer seeks a result advantageous to the client but consistent with requirements of honest dealings with others. As an evaluator, a lawyer acts by examining a client s legal affairs and reporting about them to the client or to others. See Model Rules of Prof l Conduct Preamble (2010). More specifically, Model Rule 1.2 requires that a lawyer shall abide by a client s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. Model Rules of Prof l Conduct R.1.2 (2010). The purpose of this article is to survey those jurisdictions that have recognized a theory that holds attorneys vicariously liable for the actions of clients via a method commonly referred to as civil conspiracy, while at the same time presenting established defenses to civil conspiracy. Hopefully, this information will assist in providing defense counsel with theories upon which to defend clients in this relatively new and developing area of attorney liability. Civil Conspiracy Across the States Generally, the law of civil conspiracy is underdeveloped. Its application in the context of attorney professional liability is even more limited. However, understanding the general foundation of a common law civil conspiracy claim demonstrates that attorneys are even more susceptible to such allegations because of the unique nature of their professional relationships and the requisite duties arising from their representation of clients. In most jurisdictions, although not elements of an independent tort, common- law civil conspiracy requires (1) a conspiracy between two or more parties; (2) to accomplish, by some concerted action; (3) some criminal or unlawful purpose, or some lawful purpose by a criminal and unlawful means; and (4) damage to the plaintiff as a result of the acts performed pursuant to conspiracy. Essentially, the root of a civil conspiracy claim is an agreement between two or more people, to do something unlawful, which results in loss to another. In its intended function, civil conspiracy operates as a form of vicarious liability, used to render a defendant liable for the tortious acts of another. In other words, [t]he essence of the claim is that it is merely a mechanism for imposing vicarious liability; it is not itself a substantive basis for liability. Favila v. Katten Muchin Foseman, LLP, 2010 WL , *7 (Cal. Dist. Ct. App.) (2010) (emphasis added). Thus, the agreement between two or more individuals to act for the purposes of one common goal is a fundamental requirement. This first requirement is important in the context of attorney liability because the very nature of an attorney s practice requires the attorney to represent the interests of the client and to act for the purposes of furthering the goals of the client; as a result, these first two elements may be easily established by the existence of an attorney- client relationship. The third element of an unlawful purpose or means provides some protection to defendants in that most states require that an underlying tort be established as a prerequisite for a claim of civil conspiracy. This underlying tort requirement is based on the foundation of the conspiracy cause of action, that a wrongful act can never alone amount to a tort, whether or not it may be a crime; and that some act must be committed by one of the parties in pursuance of the agreement, which itself is a tort. The gist of the action is not the conspiracy charged, but the tort working on the plaintiff. Dixon v. Reconciliation, Inc., 20 Neb. 45, 291 N.W.2d 230 (1980) (quoting William L. Prosser, Handbook of the Law of Torts 47 (4th Ed. 1971)). For example, California and New York have consistently rejected the assertion that civil conspiracy exists as its own cause of action. Both states have uniformly required a plaintiff to have an otherwise actionable tort before civil conspiracy can be used to connect the actions of separate defendants for purposes of liability. See Alexander & Alexander of N.Y., Inc., Fritzen, 68 N.Y.2d 968, 503 N.E.2d 102, 510 N.Y.S.2d 546 (1986) (stating that we long ago held a mere conspiracy to commit a [tort] is never of itself a cause of action. ); See also Applied Equipment

3 Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 511, 28 Cal. Rptr. 2d 475, 869 P.2d 454 (1994) ( Civil conspiracy is not an independent tort it must be activated by the commission of an actual tort. ). Accordingly, in most jurisdictions, if the unlawful purpose or means requirement is not established as an actionable tort, allegations of civil conspiracy do not survive. Regardless, this requirement does not help to protect an attorney who may not have been involved in the actions taken that make up the underlying tort, but who may have been otherwise involved simply due to the representation of a tortfeasor. Fortunately, some states have required more explicit instances of unlawful conduct, specifically requiring a showing of malice or intent to injure on the part of the defendant. See Agra Enterprises, Inc. v. Brunozzi, 302 Pa. Super. 166, 448 A.2d 579 (Pa. Super. Ct. 1982) (stating that civil conspiracy requires proof of malice and that establishing an intent to injure on the part of the defendants is an essential element of the claim.). Additionally, some states require heightened evidentiary standards, such as the requirement of clear and convincing proof. See Bosak v. McDonaough, 192 Ill. App. 3d 799, 804, 549 N.E.2d 643, 646 (Ill. App. Ct. 1989). Appreciably, these higher burdens will generally decrease the likelihood that an attorney may be held liable for a client s tort based on professional actions that may unknowingly result in harm to another. However, the major concern of this article arises from an emerging trend where a few states have recognized a broader application of civil conspiracy. Some states have noted that civil conspiracy may arise where there has been some generally wrongful rather than unlawful act. State v. Ridgeway Brands Mfg., 362 N.C. 431, , 666 S.E.2d 107, (2008) (citing Muse v. Morrison, 234 N.C. 195, 66 S.E.2d 783 (1951) (stating that a plaintiff has sufficiently stated a claim for civil conspiracy where he/she alleges a conspiracy, wrongful acts done by certain alleged conspirators, and injury.). In these states, the wrongful act may be the act of the client alone, an act that is not known or fully understood by the attorney, but may ultimately result in an attorney s vicarious liability for a tort if the client utilizes the attorney s otherwise lawful and ethical representation to achieve a wrongful end. Similarly, a few states have recognized a second type of civil conspiracy, which is separate and distinct from the traditional form requiring an underlying tort. This new form of conspiracy is treated as a tort of its own, and it arises from an element of coercion between the defendants. For example, Florida and Massachusetts have recognized civil conspiracy as having two forms: (1) where liability is imposed on one for the tort of another (the traditional form, requiring an underlying tort), and (2) where no independent tort basis is needed because of the concert in action or coercion of the defendants. See Walters v. Blakenship, 931 So. 2d 137, (Fla. 2006); See also Kurker v. Hill, 44 Mass. App. Ct. 184, 188, 689 N.E.2d 833, 836 (1998). Specifically, states such as Florida and Massachusetts explain that [t]wo kinds of civil conspiracy [exist] [t]he element of coercion has been required only if there was no independent basis for imposing tort liability where the wrong was in the particular combination of the defendants rather than in the tortious nature of the underlying conduct. Kurker, 44 Mass. App. at 188, 689 N.E.2d at 836 (emphasis added). Although not in the context of the attorney- client relationship, the holding in Walters v. Blakenship illustrates the seemingly unreasonable expansion of this theory of liability with the absence of the requirement for underlying tort and the loss of the requirement for some other heightened standard of culpability, such as malice or intent. 931 So. 2d 137 (Fla. Dist. Ct. App. 2006). In Walters, a former condominium owner brought suit against his former condominium neighbors for tortious interference with economic advantage and civil conspiracy based on allegations that the former neighbors had conspired to place their homes on the market at the same time that the plaintiff was conducting an auction on his home, for the sole purposes of driving down the plaintiff s price at auction. Id. at 139. This Florida court, citing two distinct forms of civil conspiracy, found that while civil conspiracy generally requires an underlying tort, an alternative basis for a civil conspiracy claim exists where the plaintiff can show some peculiar power of coercion possessed by the conspirators by virtue of their combination, which an individual acting alone does not possess. Id. at 140 (citing Churrauca v. Miami Jai- Alai, Inc., 353 So. 2d 547 (Fla. 1977)). As a result, the court found that the plaintiff had sufficiently stated a claim for civil conspiracy based on the concerted nature of the defendants actions [which] allegedly cause[d] the resulting losses to Liability may arise where the attorney holds a level of intent, possibly consisting of a knowing violation of duty or a purpose of personal gain. [the plaintiffs], without the establishment an underlying tort. Id. at 141. The broad application of civil conspiracy in Massachusetts and Florida leave open the possibility of imposing liability on an attorney and client when, by their actions, they coerce, and the coercion results in damage to the third party. Under this view of civil conspiracy, it is certainly possible that an individual, who enters into an agreement with another represented party after some negotiations, could make an actionable claim against the opposing attorney and client if the individual later decides that the agreement resulted in some type of damage. This analysis follows the harm resulting from concerted action principle, which appears to be a basis for the establishment of civil conspiracy in some states. Clearly such an application of the law in the attorney- client context would threaten the very nature of the attorney- client relationship and the adversarial nature of the American legal system. Amidst the emerging trend in which jurisdictions have shown a willingness to apply civil conspiracy to actions taken by an individual in his or her capacity as an attorney, there is some good news. Certain jurisdictions have recognized defenses to civil conspiracy that acknowledge the spe- For The Defense n January 2011 n 43

4 P R O F E S S I O N A L L I A B I L I T Y cial relationship between attorneys and their clients. These defenses may be utilized by counsel in jurisdictions that have not yet dealt with civil conspiracy in this context, and also may assist by establishing these defenses as a means to prevent attorneys from being unreasonably held vicariously liable for their lawful efforts in the representation of their clients. The emphasis of the agent s immunity defense focuses on which party holds the duty to the harmed plaintiff: the attorney or the client? Civil Conspiracy and Attorneys, Developing Law and Defenses In general, there are four potential defenses to any claim of civil conspiracy in the context of attorney liability. These include alleging that the attorney s conduct defensible as (1) an action encompassing the litigation privilege, (2) an action within the scope of the attorney s representation, (3) an action as an agent of the principal, and (4) an action pursuant to the intracorporate conspiracy doctrine. The Litigation Privilege The litigation privilege arises from the common law and is based on the public policy to afford attorneys with the utmost freedom in their efforts to secure justice for their clients. Restatement (Second) of Torts 586 cmt. a. (1977). Originally, the scope of the privilege surrounded communications made by an attorney during the litigation phase of a suit and prevented claims of defamation against an attorney in the litigation context. However, this privilege has expanded, and many jurisdictions now recognize its application to attorney conduct during litigation. See Clark v. Druckman, 218 W. Va. 427, 626 S.E.2d 864, 870 (2005) (stating that there was no reason to distinguish between communications 44 n For The Defense n January 2011 made during the litigation process and conduct occurring during the litigation process, but limiting the privilege s scope to conduct occur[ing] in the course of the attorney s representation. ); also Unarco Material Handling, Inc. v. Liberato, 317 S.W.3d 227 (Tenn. Ct. App. 2010) (stating that courts in Illinois, Minnesota, Missouri, New York and Oregon had addressed the conduct issue and held that an attorney is afforded a conditional or qualified privilege when claims of [intentional interference with a contractual relationship] and [intentional interference with prospective economic advantage] are asserted against him by his client s adversary ) (citations omitted). Additionally, this privilege was extended to both communication and conduct made in the anticipation or preparation of litigation. See Unarco, 317 S.W.3d at 238 (concluding that the litigation privilege applies to cases of attorney conduct and communication prior to litigation if done with capacity as counsel, in good faith, not for the attorney s own interest, and the act is related to potential litigation, with a real nexus between the conduct and the representation). The public policies behind this privilege include (1) promoting the candid, objective, and undistorted disclosure of evidence; (2) placing the burden of testing the evidence upon the litigants during trial; (3) avoiding the chilling effect resulting from the threat of subsequent litigation; (4) reinforcing the finality of judgments; (5) limiting collateral attacks on judgments; (6) promoting zealous advocacy; (7) discouraging abusive litigation practices; and (8) encouraging settlement. Matsuura v. E.I. du Pont de Nemours & Co., 102 Haw. 149, 73 P.3d 687, 693 (2003). Ultimately, this privilege operates to protect the actions of an attorney during the representation of a client by limiting the viability of suits based on the alleged wrongful actions of an attorney during his or her representation of a client. Specifically, in the context of civil conspiracy, the privilege may help limit this mode of vicarious liability where the attorney s actions meet the threshold requirements of the privilege, namely (1) the attorney was acting in the capacity of counsel for a client or identifiable prospective client when the conduct occurred, (2) the attorney was acting in good faith for the benefit of and on behalf of the client, not the attorney s self interest, (3) the conduct was related to the subject matter of proposed litigation that was under serious consideration by the attorney, and (4) there was a real nexus between the attorney s conduct and the litigation under consideration. Unarco, 317 S.W.3d at 238 (noting limits on the application of this privilege where the attorney employed wrongful means, defined to include fraud, trespass, threats, violence, or other criminal conduct ). Scope of Representation Several states recognize a limitation on a plaintiff s ability to pursue a claim for civil conspiracy against an attorney when the basis for the alleged conspiracy arises from actions committed within the scope of the attorney s representation of a client. Under this line of case law, the vicarious liability of civil conspiracy generally does not attach to attorneys unless the alleged claim supports that the action committed by the attorney fell outside of the scope of attorneyclient representation. In these cases, evidence that the attorney acted for his or her own personal gain, acted outside the scope of his or her duties as an attorney, or acted in violation of some independent legal duty to a third party is required in order to prevail on a civil conspiracy cause of action. In these situations, liability may arise where the attorney holds a level of intent, possibly consisting of a knowing violation of duty or a purpose of personal gain. For instance, an attorney who conspires to cause a client to violate a statutory duty peculiar to the client may be acting not only in the performance of professional duty to serve the client, but also in furtherance of the attorneys own financial gain [a]d di tion ally, a claim [for conspiracy] may lie against an attorney for conspiring with his or her client to cause injury by violating the attorney s own duty to the plaintiff. Favila, 2010 WL , *8 (quoting Doctors Co., 49 Cal. 3d at 46, 260 Cal. Rptr. 183, 775 P.2d 508). Similarly, in Texas, [i]f an attorney acting for his client participates in fraudulent activities, his action is foreign to the duties of an attorney therefore, [he] is

5 liable if he knowingly commits a fraudulent act or knowingly enters into a conspiracy to defraud a third person. Querner v. Rindfuss, 96 S.W.2d 661, 666 (Tex. Ct. App. 1998). Also, the Supreme Court of South Carolina held that an attorney may be held liable for conspiracy where, in addition to representing his client, he breaches some independent duty to a third person or acts in his own personal interest, outside the scope of his representation of the client. Stiles v. Onorato, 318 S.C. 297, 300, 457 S.E.2d 601, 602 (1995). Agent s Immunity A defense based on an agent s immunity effectively attacks the first of the elements in a civil conspiracy claim, namely the requirement of some sort of concerted action, or agreement, between two or more parties. Thus, the parties to a conspiracy must first come to some type of agreement or mutual understanding in order to form a conspiracy. Furthermore, the principal- agent relationship is formed where principal and agent both agree that the agent will act on the principal s behalf, subject to the principal s control. Any alleged actions by the agent, which are committed during the course and scope of the agency relationship, are imputed to the principal, and are not considered acts of the agent itself. The agent s immunity doctrine states that [a] cause of action for civil conspiracy may not arise if the alleged conspirator, though a participant in the agreement underlying the injury, was not personally bound by the duty violated by the wrongdoing and was acting only as the agent or employee of the part who did have that duty. Doctors Co. v. Superior Court, 49 Cal. 3d 39, 44, 260 Cal. Rptr. 183, 775 P.2d 508 (1989). Analysis of the parties relationships and responsibilities attacks the basic element of a claim for civil conspiracy: in attorney- client representation, there can be no conspiracy because the agent- attorney is acting as the client, and on behalf of the client. Functionally there is only one party, as an attorney is defined as one who is designated to transact business for another; a legal agent. Black s Law Dictionary (8th Ed. 2005). California courts have expounded this principle, expressly stating that when there is a conspiracy claim against an attorney based on the violation of a duty owed by the client, but not the attorney, and the attorney was acting within the scope of his or her professional responsibilities, the claim has no merit. Favila, 2010 WL at *8. In other words, any duty that the client owes to another does not personally bind the attorney to liability for breach of that duty. Consequently, the emphasis of the agent s immunity defense focuses on which party holds the duty to the harmed plaintiff: the attorney or the client? Unless the attorney violates some duty that is personally owed to the plaintiff, the attorney is not vicariously liable for the tortious acts of his or her client simply because the attorney s professional practice is linked to the alleged wrongful acts through the attorney s representation. In Favila v. Katten Muchin Roseman LLP, a California court upheld a plaintiff s amended pleading alleging that the corporate counsel of a closely held corporation committed civil conspiracy involving the alleged fraud, conversion, and breach of fiduciary duty by a major shareholder following the death of the founding shareholder, which resulted in the subsequent transfer of the corporate assets. 188 Cal. App. 4th 189 (Cal. App. Dist. 2, 2010). The court found that the proposed amended complaint sufficiently plead civil conspiracy based on the corporate counsel s independent duty to the plaintiff. Id. at This finding rests on the idea that the independent legal duty owed to the plaintiff qualified as an exception to the general prohibition against civil conspiracy claims in the context of attorney practice. The court stated that the attorneys had an independent legal duty not to defraud individuals engaged in business transactions with his or her client, and noted that the plaintiff s complaint alleged that the attorney defendants agreed to defraud the plaintiff by selling the corporate assets at a price substantially below market value. Id. Since the attorney s actions violated a personal duty owed to the plaintiff, the court found the action for civil conspiracy could stand. This case exemplifies the rationale behind the agent s immunity rule prohibiting civil conspiracy claims against attorneys with the exception of those cases where the attorney commits a violation of a personal duty owed to the plaintiff. Intra-Corporate Conspiracy Doctrine The intra- corporate conspiracy immunity is similar to the agency immunity defense in that it operates to bar claims of conspiracy between a corporation and its employees based on agency principles. See Harp v. King, 266 Conn. 747, 776, 835 A.2d 953 (2003). However, this defense will apply more readily to the specific setting in which an attorney represents a corporation or other business entity. The doctrine is based on the assumption that a basic principle of agency is that a corporation can act only through the authorized acts its corporate directors, officers, and other employees and agents. Thus, the acts of the corporation s agents are attributed to the corporation itself. Id. Most importantly, intra- corporate action does not satisfy the plurality requirement necessary to establish an actionable conspiracy claim. Id.; See also Fox v. Deese, 234 Va. 412, 428, 362 S.E.2d 699, 708 (1987) (stating that [b]y definition, a single entity cannot conspire with itself. ). As with the other defenses to civil conspiracy, this doctrine will not bar a civil conspiracy claim where the agent does not act within the scope of the employment or has an independent personal stake in achieving the principle s objective. In New York, the intra- corporate conspiracy doctrine applied to a group of attorneys representing a school board. The court stated, [t]he fact that the plaintiff has named the Board s attorneys as defendants in this matter does not negate the application of the intracorporate conspiracy doctrine. The plaintiff has presented no factual basis that the conduct of the Board s counsel was outside the scope of its legal representation to the Board. Stepien v. Schaubert, slip op., 2010 WL *6 (W.D. N.Y. 2010). Additionally, there has been at least one court in Connecticut that barred a claim of civil conspiracy between an attorney and her client based on the doctrine of intra- corporate conspiracy. See Negro v. Hirsch, 37 Conn. L. Rptr. 769 (Conn. Super. 2004); discussed in White Oak Corp. v. American International Group, Inc., 2009 WL (Conn. Super. 2009). In the Negro opinion the court held that an attorney representing a municipality was an agent of the municipality and as such there was no con- Vicarious, continued on page 66 For The Defense n January 2011 n 45

6 Vicarious, from page 45 spiracy between two or more individuals or entities. Id. Conclusion Civil conspiracy, much like criminal conspiracy, operates as a method to join parties to action and make defendants vicariously liable for the actions of the other codefendants. However, its application to attorneys in their representation of clients should require a plaintiff to establish some level of particular wrongdoing or fault on the part of the attorney before joining that attorney as a defendant. This is because the unique nature of the attorney- client relationship is one of agency where the attorney is charged with professional and ethical duties to zealously represent and advance the wishes of the client. Application of civil conspiracy to attorneys for the actions of their clients, without restraint, will continue to subject attorneys to liability based upon their ordinary practice of law. We hope that the presentation of the policy considerations illustrated in this article, along with the defenses identified, will help to establish these defenses as a bar to any civil conspiracy liability arising out of an attorney s legal and ethical representation of clients. 66 n For The Defense n January 2011