97 F.3d 640, 645 (2d Cir. 1996); Babcock v. Jackson,
12 N.Y.2d 473, 481-82 (1963); see also Padula v. Lilarn
Props. Corp., 84 N.Y.2d 519, 521-22 (1994).
A state has a paramount interest in regulating the conduct of
attorneys licensed to practice within its borders. See LNC Invs., Inc.
v. First Fidelity Bank, N.A., 935 F. Supp. 1333, 1350-51 (S.D.N Y
1996); see also Shaklee Corp. v. Oberman, No. 91 Civ. 6870, 1993 WL
378268, at *1 (S.D.N.Y. Sept. 20, 1990) (finding that New York had a
predominant interest in issues involving legal malpractice allegedly
committed by a New York attorney). DGI has repeatedly argued that
Daugerdas' duties as DGI's attorney are the "linchpin" of this claim. See
DGI Mem. at 23; see also 9/19/00 Transcript of Hearing ("9/19/00 Tr.") at
14. Daugerdas is a citizen of Illinois who is licensed to practice law in
that state. He is not licensed to practice law in New York. DGI is a
Delaware corporation with its principal place of business in New York,
which at all relevant times maintained an office and transacted business
in Illinois. Although New York may have a slight interest in protecting
its citizens who engage out-of-state attorneys, this interest is
outweighed by Illinois' interest in regulating the conduct of its
attorneys.*fn8 See LNC Inv., 935 F. Supp. at 1351. Accordingly, Illinois
law will apply to this claim.*fn9
2. The Elements of a Breach of Fiduciary Duty Claim
In order to assert a successful claim for breach of fiduciary
duty, DGI must prove: (1) the existence of a fiduciary duty; (2) breach
of that duty; and (3) proximately resulting damages. See Arena Football
League, Inc. v. Roemer, 9 F. Supp.2d 889, 897 (N.D.Ill. 1998) (citing
LaSalle Bank Lake View v. Seguban, 937 F. Supp. 1309, 1324 (N.D.Ill.
1996)). It is well established that a fiduciary relationship exists as a
matter of law between an attorney and his client. See Morris v.
Margulis, 718 N.E.2d 709, 712 (Ill.App.Ct. 1999). Thus, the first
question that must be addressed is whether DGI had an attorney-client
relationship with Daugerdas when it allegedly disclosed the OPS
a. The Existence of an Attorney-Client Relationship
The moving parties contend that Daugerdas was solicited by DGI in
connection with the OPS to become its "marketing partner." They argue
that because DGI did not approach Daugerdas in his capacity as an
attorney nor seek any legal advice, an attorney-client relationship was
never formed. They further assert that any evidence proving the existence
of an attorney-client relationship with respect to tax strategies other
than the OPS is irrelevant to this action.
There is no dispute that a formal or written agreement establishing
an attorney-client relationship with respect to matters pertaining to the
OPS does not exist. However, such an agreement is not a prerequisite to
the formation of an attorney-client relationship. See United States v.
Evans, 113 F.3d 1457, 1465 (7th Cir. 1997); Sain v. Nagel,
997 F. Supp. 1002,
1010 (N.D.Ill. 1998); Hoban v. Srata Mktg., Inc., No. 91 C 5331, 1991 WL
204965, at *2 (N.D.Ill. Oct. 2, 1991). The formation of an attorney-client
relationship "hinges upon the client's [reasonable] belief that he is
consulting a lawyer in that capacity and his manifested intention to seek
professional legal advice." Westinghouse Elec. Corp. v. Kerr-McGee Corp.,
580 F.2d 1311, 1319 (7th Cir. 1978) (internal quotations
and citation omitted); see also Evans, 113 F.3d at 1465; Central Die
Casting and Mgmt. Co. v. Tokheim Corp., No. 93 C 7692, 1994 WL 233653,
at *2 (N.D.Ill. May 25, 1994). To establish a fiduciary or implied
attorney-client relationship, the putative client must show that
he submitted confidential information to a lawyer with the reasonable
belief that the lawyer was acting as his attorney. See United States v.
Evans, 954 F. Supp. 165, 167 (N.D.Ill.), aff'd, 113 F.3d 1457 (7th Cir.
1997); Hoban, 1991 WL 204965, at *2; American Motors Leasing Corp. v.
Reid, No. 87 C 10999, 1989 WL 55085, at *2 (N.D.Ill. May 16, 1989); Pain
Prevention Lab, Inc. v. Elec. Waveform Labs., Inc., 657 F. Supp. 1486,
1495 (N.D. Ill. 1987). However, it is equally "well settled that the
requisite attorney-client relationship is not established when the client
seeks business or personal advice, as opposed to legal assistance."
Radiant Burners, Inc. v. American Gas Assoc., 320 F.2d 314, 324 (7th
Cir. 1963); see also Westinghouse, 580 F.2d at 1319 (the relationship
will "not arise where one consults an attorney in a capacity other than
as an attorney").
Prior to DGI's disclosure of the OPS, Haber had engaged Daugerdas
to represent DGI as its attorney in connection with tax issues associated
with the ALFS. See Engagement Agreement. On at least one occasion after
Daugerdas was engaged by DGI, Daugerdas rendered legal advice to Haber
relating to the ALFS. See Comment Letter. Haber has stated that at all
times subsequent to the execution of the engagement agreement DGI acted
and communicated with Daugerdas under the belief that Daugerdas was its
attorney, see Haber Aff. ¶¶ 5, 6, and on at least one occasion, Haber
represented this belief to a third party. See 3/25/98 Letter from Haber
to C.G. Kligge, Ex. 21 to McConnell Aff.*fn10 DGI has also produced
several of A & G's invoices billing DGI for "Professional Legal Services
rendered." See Invoices, Exs. 31, 32, 34 to McConnell Aff.
According to Haber, when he communicated the idea of the OPS to
Daugerdas sometime in 1998, Daugerdas agreed to help evaluate the
strategy's tax consequences, as well as develop and market the strategy
in accordance with their prior practice and the terms of their
contractual understanding. See Haber Dep. at 41-54. In August 1998, Haber
forwarded to Daugerdas a draft of a legal memorandum prepared by
Tilevitz, then an attorney engaged by DGI to review and develop tax
strategies, addressing the legal and tax implications of the OPS. See
Draft Memorandum, Ex. 24 to McConnell Aff. A modified draft of this
memorandum was forwarded to Daugerdas in May 1999. See Draft Memorandum
II, Ex. 28 to McConnell Aff. These memoranda were forwarded to Daugerdas
to assist him in his provision of legal services associated with the
strategy.*fn11 See Haber Aff. ¶ 33.
Advice relating to the tax consequences of proposed transactions,
when rendered by an attorney, is considered legal advice. See In re Grand
Jury Subpoena Duces Tecum, 731 F.2d 1032, 1037 (2d Cir. 1984) (advice
rendered by an attorney concerning the tax consequences of alternative
employee compensation plans is considered legal advice); Matter of
Federated Dep't Stores, Inc., 170 B.R. 331, 354 (S.D.Ohio 1994) (tax
planning advice rendered by an attorney is legal advice); see also In the
Matter of Grand Jury Proceedings, 220 F.3d 568, 571 (7th Cir. 2000). DGI
has produced sufficient evidence to create a disputed issue of material
fact as to whether Haber provided Daugerdas with confidential information
relating to the OPS for the purpose of seeking legal advice. Further, in
light of the parties' prior dealings, DGI's belief that Daugerdas was
acting as its attorney was not objectively unreasonable. Accordingly, I
cannot conclude as a matter of law that an attorney-client relationship
with respect to matters pertaining to the OPS did not exist. See Sain,
997 F. Supp. at 1010 (precluding summary judgment on the issue of whether
an implied attorney-client relationship existed because of a disputed
issue of material fact).
b. Breach of Duty
DGI premises its breach of fiduciary duty claim on Daugerdas' alleged
duties of confidentiality and loyalty. DGI asserts that Daugerdas, as its
attorney, breached these duties by disclosing and marketing the OPS to his
clients without fairly compensating DGI or obtaining its consent. See DGI
Compl. ¶¶ 26-29.
American jurisprudence has long recognized the central importance of
the attorney-client relationship.
There are few of the business relations of life
involving a higher trust and confidence than those
of attorney and client or, generally speaking, one
more honorably and faithfully discharged; few more
anxiously guarded by the law, or governed by
sterner principles of morality and justice; and it
is the duty of the court to administer them in a
corresponding spirit, and to be watchful and
industrious, to see that confidence thus reposed
shall not be used to the detriment or prejudice of
the rights of the party bestowing it.
Stockton v. Ford, 52 U.S. (11 How.) 232, 247 (1850). Arising from this
principle are the duties of confidentiality and loyalty, which are imposed
upon attorneys "to fortify the client's trust placed with the attorney and
to ensure the public's confidence in the legal system as a reliable and
trustworthy means of adjudicating controversies." Douglas v. DynMcDermott
Petroleum Operations Co., 144 F.3d 364, 370 (5th Cir. 1998); see also
Maritans GP Inc. v. Pepper, Hamilton & Scheetz, 602 A.2d 1277, 1282-1285
The ethical duty of confidentiality imposed upon attorneys goes
beyond the limited evidentiary, attorney-client privilege. See Isaacson
v. Keck, Mahin & Cate, No. 92 C 3105, 1993 WL 34738, at *1 (N.D.Ill.
Feb. 9, 1993); People v. Curry, 272 N.E.2d 669, 672 (Ill.App.Ct. 1971).
The rule of confidentiality, as the courts have described it, applies not
only during judicial proceedings, but at all times, and to client
"secrets" as well as "confidences." See Profit Mgmt. Dev., Inc. v.
Jacobson, Brandvik and Anderson, Ltd., 721 N.E.2d 826, 835 (Ill.App.Ct.
1999); In re Marriage of Decker, 606 N.E.2d 1094, 1102 (Ill. 1992); see
also Curry, 272 N.E.2d at 672. The rule is codified in Rule 1.6 of the
Illinois Rules of Professional Conduct, which provides in relevant part:
(a) Except when required under Rule 1.6(b) or
permitted under Rule 1.6(c), a lawyer shall not,
during or after termination of the professional
relationship with the client, use or reveal a
confidence or secret of the client known to the
lawyer unless the client consents after
The Preamble to the Illinois Rules of Professional Conduct defines a
"confidence" and "secret" as follows:
"Confidence" denotes information protected by
the lawyer-client privilege under applicable
"Secret" denotes information gained in the
professional relationship, that the client has
requested be held inviolate or the revelation
of which would be embarrassing to or would
likely be detrimental to the client.
Intertwined with the rule of confidentiality is the duty of
loyalty, which is codified in Rule 1.9 of the Illinois Rules of