A potential client walks into an attorney's office and says he was subject to discrimination and fired from his job on the account of his race. He then details his view of the facts leading up to his perceived wrongful termination. The attorney responds that it sounds like an excellent case and informs the client that he will prevail and make a lot of money. The attorney requests a non-refundable retainer fee of $10,000, plus an hourly fee. The client agrees and pays the $10,000.
The attorney then files a complaint for wrongful termination against the client's former employer based on the information provided by the client. The former employer denies the allegations and is unwilling to pay any money in settlement. The former employer then files a motion for summary judgment and prevails. The client loses the appeal.
The unhappy client, now convinced that he had no meritorious case from the outset, then sues his (former) attorney for fraud alleging that the attorney knew that the client did not have an excellent case from the beginning, would not prevail and would not make a lot of money. The former client further alleges that the attorney took the case solely to obtain the $10,000 retainer fee and the hourly fee. He seeks from the attorney recovery of the $10,000, plus the attorney's fees expended, emotional distress damages and punitive damages.
Elements of Fraud
In order to recover under a fraud theory, the former client must prove the necessary elements of fraud which are:
- misrepresentation (false representation, concealment, or nondisclosure);
- knowledge of falsity (scienter);
- intend to defraud (i.e., to induce reliance);
- justifiable reliance; and
- resulting damage. (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092.)
If the attorney can negate any of the essential elements of the fraud claim, then the attorney will prevail.
The alleged misrepresentations are "that the client had an excellent case, and that he would prevail and make a lot of money." While no published case in California directly addresses the issue as to whether an attorney may be liable for fraud for taking a case based on a misrepresentation to the potential client of the likelihood of success or for "guaranteeing" or "predicting" the client's victory, out of state authority holds that liability for fraud under such circumstances will "scarcely be justified." For example, in Eadon v. Reuler, 146 Colo. 347 (1961), the Supreme Court of Colorado held that: "[a] lawyer does not guarantee results. He merely undertakes to use his best skill and judgment. A result unsatisfactory to the litigant scarcely justifies a suit charging the lawyers with fraud and conspiracy." Thus, the client, like any other party to litigation, cannot reasonably expect the attorney to predict the final result with complete accuracy. Rather, the client must understand that he might come away empty-handed, and even if it is an "excellent" case, the outcome is always uncertain.
Based on the holding in Eadon, the client is charged with knowledge of the fact that the outcome is never certain, even in the face of the attorney's statement that the client will win. This is because, by its very nature, the attorney's assessment of the likelihood of success is an opinion, and not a statement of fact which will normally give rise to a valid fraud claim. (See Daniels v. Oldenburg, 100 Cal.App.2d 724 (1950) ["In order to justify a finding that a representation was one of fact as distinguished from opinion it must appear that the matter referred to is within the range of definite knowledge and does not necessarily rest on belief and conjecture."])
Allegations similar to those raised in the hypothetical were addressed by the Supreme Court of Alabama in Lawson v. Cagle, 504 So.2d 226 (1987). In Lawson, the attorney allegedly promised a million dollar recovery to the client. The court held that such a statement by an attorney to a client is "mere puffery," and does not constitute actionable fraud. In other words, the attorney's promise amounts to a mere prediction or opinion relating to a future event and is not a representation of existing fact, on which the client has the right to rely. The court in Lawson added that: "[n]either attorneys, nor trial judges, nor jurors, nor clients can know the results of litigation until after the deliberations of an unbiased trier of fact. The value, if any, of this lawsuit is determined by the trier of fact solely on the law and the facts admitted into evidence. Therefore, the amount that a client will receive when his or her case is finally concluded is something that an attorney cannot know, and the expressions of such an opinion or prediction by an attorney is something on which no client has a right to rely. Regardless of whether the attorney represents this as an opinion or as a fact, it is not of a character which would justify a reasonable reliance, for this could not be known and the client must know that this could not be known unless something had been done to pervert the orderly administration of justice."
Limits of Liability
Based on the holdings in Eadon and Lawson, an attorney will likely not be liable for fraud simply for advising a client that he has a valid claim or that the claim will prevail. As one New York court explained: "[a]s a statement of opinion, it is not a representation of material fact and thus, cannot support a claim for fraud." (Mergler v Crystal Properties Associates, Ltd. 179 A.D.2d 177, 181 (1992).)
A claim for fraud based on a prediction of success or an evaluation of the client's case will normally not be actionable fraud. Since no one can definitively predict whether a client will in fact recover money either by way of judgment or settlement, or whether a client will prevail at all, it is unlikely that an attorney will be liable for fraud for "predicting" that the client will win the case or for "guaranteeing" that the client will make a lot of money. Until a matter is litigated, an attorney cannot know with absolute certainty whether there will be any defense, a limited defense, or a full defense to the claims. Therefore, any attempt to hold an attorney liable for fraud based on such "guarantees" or "predictions" will normally fail.
Notwithstanding the holdings in Eadon and Lawson and the "ordinary" case where fraud liability for such predictions is unlikely, if the facts and circumstances suggest that no prudent attorney would have taken the case, and that the attorney only took the case to separate the client from his money without an honest good faith belief that the case was viable, then a California court could diverge from the holdings in Eadon and Lawson and allow such a fraud claim to proceed. Therefore, prior to taking a case, an attorney should always ensure that an evaluation is based on sufficient specific information to support the attorney's opinion.
For example, expanding on the prior hypothetical, if the client explained to the attorney at their initial meeting that his former boss made racially derogatory statements to him moments before firing him, then the attorney's statement that it was an "excellent" wrongful termination case could be supported by sufficient evidence. On the other hand, if the attorney cannot provide facts coupled with legal authority to support her advice, then the attorney's credibility will likely suffer and the court may be more inclined to allow the fraud claim to go to a jury.
Although fraud liability based on the attorney's evaluation of the case remains a longshot for the disappointed client, an attorney should still strive to set realistic expectations for the client at the outset in order to limit disappointment. Even the best case may turn out to be a loser leaving the attorney facing twenty-twenty hindsight in trying to support the prior evaluation that it was an "excellent" case. As a result, the attorney needs to strike a balance between not unjustifiably raising the expectations of the client at the outset of the retention, while at the same time, managing to retain the client's confidence in her abilities. In this regard, honest communication is essential. An express oral disclaimer, as well as a written disclaimer in the retainer agreement, to the effect that it is impossible to predict with certainty whether the case will be won or lost, and that the attorney does not guarantee or predict the results should be helpful in reminding the client that the outcome is always speculative and uncertain. Such communication should go a long way in terms of defending against such claims of fraud as well as avoiding them in the first place.
*article courtesy of Jonathan b. Cole and Scott C. Pape of Nemecek & Cole.