Attorneys – Co-Counsel Contract – Tort/Negligence – Breach of Fiduciary Duty – Economic Loss Rule

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The co-counsel agreement among the parties – all attorneys – established a joint venture and thus a fiduciary relationship among them. However, on an issue of first impression, the court agrees with plaintiffs that, despite the existence of a fiduciary relationship, co-counsel have neither a fiduciary duty to protect one another’s prospective interest in fees, nor a cause of action against one another for prospective fees lost.

The court grants defendant’s motion to dismiss plaintiffs’ claim for breach of fiduciary duty but denies the motion as to plaintiffs’ claims for breach of contract and specific performance. The court grants plaintiffs’ motion to dismiss defendant’s breach of contract counterclaim.

Background

The parties, four attorneys, entered into a co-counsel agreement to represent plaintiffs in several actions against the Cherokee County Department of Social Services. In one underlying action, the jury awarded the underlying plaintiffs $4.6 million, and DSS agreed to settle the other actions for $42 million.

During these events, defendant Christian experienced personal, health and financial problems. He withdrew as counsel in one of the underlying actions, and the plaintiff-attorneys allege he failed to perform with respect to other underlying actions.

The plaintiff-attorneys allege defendant breached the co-counsel agreement and his fiduciary duty to them. Defendant counterclaims for breaches of contract and fiduciary duty.

Plaintiffs’ Claims

According to plaintiffs, the co-counsel agreement (the Agreement) “establish[ed] responsibilities, work and collateral duties and memorialize[d] their agreement regarding this venture[.]” Under the Agreement, defendant was required to “assist in research, motion preparation and [provide] any assistance as needed[.]” Defendant, like plaintiffs, was also required to “participate equally in strategy, preparation and review of documents, attend[ing] Court for hearings and trial[,] and any settlement discussions.”

Plaintiffs allege that, after the first jury verdict and the receipt some settlement funds, defendant breached these Agreement provisions by “fail[ing] to provide the services needed . . . and agreed upon . . . to properly complete the work required for the remaining cases.” Plaintiffs further allege that, when requested to assist, Defendant not only “failed to perform his tasks[,]” but also “provided dishonest answers as to status and work performed.” Plaintiffs also aver that, up until defendant opted out of the Agreement and withdrew from one of the underlying actions in October 2022, defendant “failed to participate[ ] in any meaningful way and . . . billed less than 50 hours[.]”

Plaintiffs argue that defendant’s “intentional failures caused [them] avoidable burdens, undue hardship, and unnecessary stress” and that defendant’s alleged breach “has caused [them] harm, injury, and damage[.]”

These alleged facts satisfy plaintiffs’ pleading burden under N.C. R. Civ. P. 8.

Plaintiffs sufficiently allege the existence of a fiduciary duty between defendant and themselves. However, the conduct that they allege breached defendant’s fiduciary duty is the same conduct that they allege breached defendant’s contract with them. Accordingly, the economic loss rule bars plaintiffs’ breach of fiduciary duty claim.

Defendant’s Counterclaims

Defendant’s breach of fiduciary duty counterclaim alleges that plaintiffs engaged in vague, duplicative, and excessive billing practices—behavior in which defendant claims he did not participate—that resulted in a blanket 40 percent reduction of all four attorneys’ billed hours in one of the underlying actions, resulting in “a reduced award and personal loss to [Defendant] in a minimum amount of $116,147.50.”

Plaintiffs argue that, despite the existence of a fiduciary relationship, co-counsel have neither a “fiduciary duty to protect one another’s prospective interests in a fee[,]” nor a “cause of action against [one another] for prospective fees lost.”

This issue appears to be a matter of first impression in North Carolina. Other courts, however, have adopted plaintiffs’ position, citing potential conflicts of interest between duties owed to co-counsel and those owed to clients or out of a concern that the attorney-client privilege could be jeopardized in cases where, as here, a conflict arise between co-counsel.

The court finds the public policy concerns raised by these courts compelling and, in the absence of any counterarguments by defendant, concludes that the North Carolina Supreme Court would adopt a similar prohibition on finding the existence of a fiduciary duty among co-counsel to protect one another’s interest in a prospective fee or permitting an attorney to bring a cause of action against co-counsel for the loss of a prospective fee.

Accordingly, the court will dismiss Defendant’s breach of contract counterclaim to the extent it seeks to recover damages for loss of prospective attorneys’ fees in the Hogan Case and, since this is the only subject matter it covers, the breach of fiduciary duty counterclaim will be dismissed in its entirety.

Motions granted in part, denied in part.

Wijewickrama v. Christian (Lawyers Weekly No. 020-055-23, 30 pp.) (Louis Bledsoe, C.J.) 2023 NCBC 55. Philip Anderson and Ronald Payne for plaintiffs; Mathew Flatow and Brandon Forbes for defendant. North Carolina Business Court