There is a new case of professional responsibility that is the talk of the ethics community: Knutson v. Foster; 2018 DJDAR 7891 (Cal. App. 4th Dist. Aug. 8, 2018). It provides some answers to an age-old problem, and raises a number of new questions.
A world-class swimmer, sued her former lawyer for "fraudulent concealment and intentional breach of fiduciary duty." The trial court granted a new trial because the swimmer failed to establish that the lawyer's conduct was the cause of the damages. There is a paucity of cases of intentional breach of fiduciary duty by lawyers, and it is well-established that they are fiduciaries per se.
"Emotional distress damages" for legal malpractice or conduct involving lawyers are rumored to exist. According to Stanley v. Richmond, 35 Cal. App. 4th 1070 (1995), a conflict case where two opposing lawyers decided to "partner up" after the case, the loss of a home is not sufficiently harmful to satisfy the heightened standard for emotional distress damages in California. Stanley presented a classic case of supposedly "soft peddling" the settlement issues in order to not upset the soon-to-be "new partner" on the other side.
Stanley is a fascinating case because we can see what quality of conduct is sufficiently outrageous to ring the bell on emotional distress. The conduct must be characterized as "wanton or malicious," and those cases are rare. In an out-of-state case, children were able to sustain a claim, based on witnessing the lawyer beating, kicking and dragging the mother (client) by the hair. The successful cases usually involve extremely messy financial, sexual, overarching or truly horrible behavior that could be described as despicable. Bevin v. Fix, 42 P.3d 1013 (2002).
In Knutson, the shame and betrayal suffered by the plaintiff was so extreme that expert testimony was unnecessary to support her explanation of what happened. Further, since the claim was for intentional conduct, application of the burden most plaintiffs must suffer in legal malpractice matters, such as establishing the "trial within the trial," was improper. When the conduct is deemed intentional, it must be a substantial factor in the resulting harm. Knutson lightens the onerous burden which often bars recovery by a meritorious plaintiff.
There was so much drama in Knutson, it's important to understand the notorious facts which engulf the entire USA Swimming community, must be kept separate (the organization is also facing extensive claims of sexual misconduct and abuse).
USA Swimming is the national governing body that selects the U.S. swimming team, and performs in accordance with the Amateur Sports Act. As with other highly competitive sports, swimming is increasingly lucrative. Consider the endorsement contracts of stars swimmers such as Michael Phelps, Mark Spitz and Katie Ledichke. Dagny Knutson, plaintiff in this case, was on a course to swimming stardom until she trusted USA Swimming, which came disguised in wolf's clothing as her lawyer, Richard Foster. Knutson was having a meteoric rise, breaking all sorts of records and consequently receiving all kinds of scholarship offers. Ultimately, she chose Auburn University, but she reconsidered when their head swimming coach left. That's when USA Swimming's head coach, Mark Schubert, stepped in and made Knutson an offer -- orally, but witnessed by her coaches -- to turn professional, assuring her that they would take care of everything. He encouraged her to move from South Dakota to Fullerton, California. Long story short, after she relocated and sustained credible damages by turning pro, Schubert was fired and the offer left the table.
When USA Swimming failed to perform, Knutson retained Foster to assist her in obtaining the compliance. He helped fashion a settlement in which USA Swimming modified and revoked parts of the deal -- including by adding "performance markers" that required Knutson to maintain a certain ranking in order to get paid.
There is always a back story, and this was no exception. Richard Foster was well-known in the swimming community, and was rumored to have access to other highly placed members of the community. When a terminated employee of USA Swimming wanted to pursue litigation, he refused; he did not want to be in a position adverse to USA Swimming. In certain areas of legal practice, clients want to obtain representation who could be construed as conflicted. For instance, in entertainment an artist will often want to retain a lawyer who has connections with a studio, which is permissible as long as there is full disclosure in writing. But Foster never disclosed his relationship with USA Swimming, which could hinder his competency to represent Knutson, to the young swimmer. He was hobbled from the beginning, and could not be a true advocate.
Foster claimed that if the matter with Knutson progressed, he would have advised her to obtain a new lawyer. He also claimed that he did not believe the oral agreement Knutson made with Schubert could be valid due to the Statue of Frauds. What Foster failed to realize that Knutson had refused a hefty scholarship and relocated across the country to Fullerton. In other words, Knutson, who was unsophisticated, had demonstrated detrimental reliance. The young swimmer was so dedicated that her dad would park the family jeep over her hometown pool so she could practice at night. This was not a country club darling, but a hardscrabble swimmer from South Dakota. She felt there was no alternative but to accept the USA offer that included performance markers, which can lead to performance anxiety. While negotiating for Knutson, however, Foster was concurrently reassuring the representative of USA Swimming that he would not get involved in litigation against them. That meant USA Swimming, a behemoth organization, would never have to fear negative press since Foster was basically acting as a double agent.
Eventually, all this information was uncovered. The breaches were sufficiently outrageous to constitute intentional conduct, not the usual negligence ordinarily applied in cases involving lawyers. According to the court, the conduct of Foster was a "substantial factor" in leading to Knutson's harm. The court's position that "causation for intentional breach of fiduciary duty might be treated differently from negligent breach," although facially radical, was supported by the Restatement Third of the Law Governing Lawyers, Section 49: "Under generally applicable fiduciary law, a claim of intentional breach might render applicable different defenses and causation and damages rules than would otherwise control." Here, that meant applying the "substantial factor standard of causation"
Justice Richard Frybel, writing for the court, eventually came up with a laundry list of 15 instances of concealment by Foster that led to Knutson's damages. He noted that "the law in this state is that the testimony of a single person, including the plaintiff, may be sufficient to support an award of emotional distress damages." Apparently, the testimony of the young innocent swimmer was sufficient to establish: her feelings of abandonment; the betrayal by her lawyer; and the loss of her family home and lifetime health benefits. No damages were sought for her eating and psychological disorders. Causation for them would have been difficult, and the harm was clear from the testimony.
The takeaway? A sophisticated lawyer knows what to plead and when.
The age-old question, which until now was unclear, was what circumstances are needed to obtain damages for emotional distress in California. The new question: What standards will be employed to determine causation involving an intentional breach of fiduciary duty going forward? One thing is for sure, we can anticipate even more questions and eventual answers.