Lack of Loss No Bar to Recovery From Disloyal Lawyer

By Joan C. Rogers

July 13 — A law firm can recover from a former lawyer-employee for breach of fiduciary duty in setting up his own practice even if it can't prove financial loss from the infidelity, the Georgia Court of Appeals held July 9.

The firm may recover compensation paid to the lawyer during any period of disloyalty or block payment of sums otherwise owed if it can prove the former employee's breach of fiduciary duty, the court ruled in an opinion by Judge Gary Blaylock Andrews.

Payback as Remedy

The court decided that Helms & Greene LLP has a viable claim for breach of fiduciary duty against attorney Kirk Willis for unsuccessfully trying to market his own professional corporation while he was employed with the firm.

The trial court didn't think so, throwing out the firm's claim for breach of fiduciary duty before trial. Although it found that Willis breached his fiduciary duty by marketing Kirk Willis P.C. without Helms & Greene's knowledge, it concluded that Willis was entitled to summary judgment because the firm could not show that it incurred any financial injury or that Willis obtained any benefit through his marketing efforts.

The appeals court decided that whether or not Helms & Greene incurred a loss or Willis received a benefit, the firm may seek to recover compensation paid to him during his alleged disloyalty.

“This Court's precedent establishes that an available remedy for an agent's breach of fiduciary duty is recovery of compensation paid by the principal to the agent during the period of the agent's malfeasance,” the court said.

It said this principle is rooted in Ga. Code Ann. §10-6-31, which states: “An agent who shall have discharged his duty shall be entitled to his commission and all necessary expenses incurred about the business of his principal. If he shall have violated his engagement, he shall be entitled to no commission.”

The principle that an agent is not entitled to compensation during periods of disloyal service in breach of fiduciary duties is also recognized, the court said, in the Restatement (Third) of Agency §8.01 cmt. d(2) (2006) and the Restatement (Second) of Agency §469 cmt. a (1958).

Triable Claim

The appeals court reversed the trial court's grant of summary judgment against Helms & Greene on its breach of fiduciary duty claim.

Reviewing the record in the light most favorable to Helms & Greene, the court said the record included evidence that while Willis was employed as “managing member” of the firm's Dallas office, he tried to obtain new business through his P.C. by submitting three proposals in its name to provide legal services to government entities.

Willis said he pursued the work for the benefit of Helms & Greene but that he did so in his personal firm's name to leverage the potential advantage of a special certification it possessed as a minority-owned business. The court noted, however, that Willis did not disclose the proposals during monthly conference calls about his marketing efforts for Helms & Greene.

Willis left Helms & Greene in August 2012, taking many of the firm's attorneys and staff from the Dallas office with him to his new firm, the Willis Law Group.

Helms & Greene and Willis have been locked in litigation ever since. According to a news story, the case went to trial and in September 2014 a Fulton County, Ga., jury awarded Willis more than $551,183 as money the firm owed him for bonuses, and awarded Helms & Greene $105,750 for counterclaims it filed against Willis.

Judges M. Yvette Miller and Elizabeth L. Branch concurred.

Helms & Greene represented itself along with Krevolin & Horst LLC. Hill, Kertscher & Wharton LLP represented Willis.

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The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

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