A legal expert witness advises on a case involving an attorney who failed to disclose his interest in property to the client investing in it. The plaintiff owned an internet company in Vermont that was generating a great deal of revenue. The defendant is an attorney and real estate developer who is related by marriage to the plaintiff. The defendant discussed depreciation of real property and assets with the plaintiff and told him he could keep nearly all of his projected revenue with little or no associated tax liability. Among numerous transactions complained of by the plaintiff are deals in which the defendant sold nearly all of his interest in two developments to the plaintiff for millions of dollars, even though the defendant had valued the assets significantly lower on his tax forms. The defendant did not disclose to plaintiff his ownership interest in the two projects. Further, the transactions did not include the real property that the developments were built on, and those properties were already encumbered as security for loans. The defendant also took over accounting and tax services for plaintiff’s businesses. Under the defendant’s leadership, the businesses fell apart, and the plaintiff faced a considerable tax liability.
The plaintiff alleges more than $10 million in losses. He asserts claims for securities violations, breach of contract, breach of the covenant of good faith and fair dealing, fraud, breach of fiduciary duty, and conversion.
Question(s) For Expert Witness
1. What is the standard of care for an attorney?
2. What would a reasonable attorney have believed about the defendant’s relationship with the plaintiff?
3. Did the defendant’s acts fall below accepted standards?
Expert Witness Response
The defendant had an attorney/client relationship with the plaintiff, based on the ongoing exchange of legal opinions and advice given over several years. With that relationship established, the applicable standard of care can be stated. The state rules of professional conduct explain that each attorney has a duty to act at the highest level of skill and recognize that the nature of law practice often brings conflicts between the attorney and a client. An attorney has an obligation to zealously protect and pursue a client's legitimate interests.
The defendant had a financial interest in the two projects at the same time he encouraged and arranged the transfer of plaintiff’s money to the entities controlling or owning those places. Of particular interest is the agreement, wherein plaintiff gives defendant literally all of his money to manage and place it with one project without any disclosure or reference to independent counsel concerning his having a substantial ownership interest or control over those entities. The defendant had a conflict of interest in advising plaintiff to authorize his money to go to the those properties.
The attorney here was clearly dealing in his own best interest without full disclosure to the client. There was no attempt to refer the client to independent counsel on whether such an extreme act was best for the client. The materials reflect that the money disappeared into a maze of companies which defendant himself in one email called “bogus.”
The total group of emails reviewed shows that plaintiff was not legally sophisticated and defendant used his legal expertise to take over plaintiff’s complete business life. The relationship was far beyond the reasonable bounds of an attorney/client relationship.
The expert is an attorney who has acted for years as outside counsel for the state bar and specializes in attorney professional issues.
About the author
Michael Morgenstern
Michael is Senior Vice President of Marketing at The Expert Institute. Michael oversees every aspect of The Expert Institute’s marketing strategy including SEO, PPC, marketing automation, email marketing, content development, analytics, and branding.
