Idaho Supreme Court Allows Fee Disgorgement for Breach of Fiduciary Duty

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In a case of first impression, the Idaho Supreme Court recently held that fee disgorgement is available as a remedy against a lawyer for breach of fiduciary duty even if there are no resulting damages.

Parkinson v. Bevis, 448 P.3d 1027 (Idaho 2019), involved comparatively simple facts: A lawyer representing plaintiff Rebecca Parkinson in her divorce proceedings shared a confidential attorney-client communication with opposing counsel. In a subsequent lawsuit against the lawyer, Parkinson conceded that she was not damaged by the unauthorized disclosure—instead framing her claim as one for breach of fiduciary duty seeking fee disgorgement as a remedy. The trial court dismissed the claim, but the Idaho Supreme Court reversed.(Parkinson is similar to Washington’s approach to disgorgement in, among others, Behnke v. Ahrens, 172 Wn. App. 281, 298, 294 P.3d 729 (2012).)

The Idaho Supreme Court first distinguished breach of fiduciary duty from legal malpractice: “A breach of fiduciary duty claim is an equitable claim for which a defendant may have to disgorge compensation received during the time the breach occurred, even if the plaintiff cannot show actual damages.” 448 P.3d at 1033.

The court noted that confidentiality was one of the central fiduciary duties lawyers owe their clients. Citing Section 37 of Restatement (Third) of the Law Governing Lawyers (2000), the court held: “If a fact-finder were to determine that … [the] conduct [involved] was serious and clear, disgorgement of all or a portion of the attorney fees paid would be appropriate.” Id. at 1035. The court then adopted criteria set out in the Restatement as a guide in assessing fee forfeiture as a remedy in a given case:

The criteria listed in section 37 are to be used to determine whether the trial court may order forfeiture of all or a portion of an attorney’s fee as an appropriate equitable remedy in these circumstances. To reiterate, those factors are (1) the extent of the misconduct, (2) whether the breach involved knowing violation or conscious disloyalty to a client, (3) whether forfeiture is proportionate to the seriousness of the offense, and (4) the adequacy of other remedies. Id.

Depending on a law firm’s malpractice insurance policy, any amount disgorged may not be covered because it relates to fees rather than asserted negligence. Further, any funds ordered disgorged may have already been spent by the law firm involved for such routine items as rent, computer services, staff salaries, and partner draws. Therefore, fee disgorgement can present a unique risk to law firms.