Freivogel on Conflicts
 
 
 
 

Corporations

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A.  Corporations Generally

        As will be apparent below, most of the conflict-of-interest action in the corporate area involves close corporations.  For that discussion go to B. below.

        Corporate Families.  This area has spawned much litigation.  To go to the section of this guide on that subject, click here.

        Partnerships.  Click here.

        Trade Associations and other Kinds of Associations.  Click here.

        Model Rule 1.13.  This rule applies to corporate representation in a number of important respects.  First it stands for the proposition that a lawyer retained by a corporation represents the corporation.  Rule 1.13(a).  That does not mean that the lawyer has an attorney-client relationship with its officers, Innes v. Howell Corp., 76 F.3d 702 (6th Cir. 1996); Lane v. Chowning, 610 F.2d 1385 (8th Cir. 1979); U.S. Industries, Inc. v. Goldman, 421 F. Supp. 7 (S.D.N.Y. 1976); Ex parte Tiffin, 879 So. 2d 1160 (Ala. 2003) (stands for the majority view, but the analysis is not satisfactory).   

        Rule 1.13(b) provides important guidance to the lawyer for corporation when one of its constituents is behaving inappropriately.  Rule 1.13(d) reminds the lawyer for the corporation to explain to the corporation's constituents (shareholders, officers, employees, etc.) who is, and who is not, the lawyer's client when the corporation's interests are adverse to those constituents.


B.  Close Corporations

        The issue that arises most frequently in connection with close corporations is whether the lawyer for a close corporation is ipso facto lawyer for the shareholders.  This is apt to come up when the lawyer takes on a matter directly adverse to one of the shareholders, and the shareholder moves to disqualify the lawyer.  It also comes up when one of the shareholders attempts to sue the lawyer for malpractice.  In most situations, the shareholder cannot sustain the action unless the shareholder can establish that the shareholder was a client of the lawyer. 

        Following are two groups of cases.  The first group (Group 1) contains cases in which the court either denied a motion to disqualify or found that a lawyer-client relationship did not exist for malpractice purposes.  In either case, the court ruled that being a lawyer for a close corporation does not, without more, create a lawyer-client relationship with the shareholders.  The second group (Group 2) contains cases in which the court held that the lawyer for the corporation had some sort of duty to one or more shareholders.  In only a small handful of those cases did the court rule that lawyer for a close corporation is ipso facto lawyer for the shareholders.

       Group 1.  The following cases stand for the proposition that a lawyer for a close corporation is not ipso facto lawyer for the shareholders or other constituents. Waggoner v. Snow, Becker, Klaris & Krauss, 991 F.2d 1501 (9th Cir. 1993) (lawyer told CEO that he only represented the company); Stuebing Auto. Mach. Co. v. Gavronsky, 2016 WL 7380686 (S.D. Ohio Dec. 19, 2016); Kirsch v. Dean, 2016 WL 7177765 (W.D. Ky. Dec. 7, 2016) (two 50% owners; only corporation was client); Tetra Tech, Inc. v. MK Salvage Venture LLC, 2013 U.S. Dist. LEXIS 58852 (W.D. Wash. April 23, 2013); Trip Mate, Inc. v. Stonebridge Cas. Ins. Co., 2012 U.S. Dist. LEXIS 136340 (W.D. Mo. Sept. 24, 2012) (could oppose one member of insurance company "family" while representing others); Concordia Partners, LLC v. Ward, 2012 U.S. Dist. LEXIS 109540 (D. Me. Aug. 6, 2012); Local Ad Link v. Adzzoo, 2010 U.S. Dist. LEXIS 116259 (D. Nev. Oct. 14, 2010); Marshall v. G.E. Marshall, Inc., 2010 U.S. Dist. LEXIS 83167 (N.D. Ind. Aug. 12, 2010); Wega v. Center for Disability Rights, Inc., 2008 U.S. Dist. LEXIS 27643 (W.D.N.Y. March 31, 2008); Evans v. Taylorsville City, 2007 U.S. Dist. 72973 (D. Utah Sept. 28, 2007); Jones v. Winters Bros. Waste Systems, Inc., 2007 U.S. Dist. LEXIS 69460 (E.D.N.Y. Sept. 19, 2007); Hulbert v. Cheeks, 2007 U.S. Dist. LEXIS 51471 (N.D. Ill. July 17, 2007); Civco Medical Instruments Co., Inc. v. Protek Medical Products, Inc., 2004 U.S. Dist. LEXIS 10840 (S.D. Ia. June 4, 2004) (lawyer for owner/president did not represent corporation); McKinney v. McMeans, 147 F. Supp. 2d 898 (W.D. Tenn. 2001) (representing one shareholder against the only other shareholder - no disqualification); Correspondent Services Corp. v. J.V.W. Investment, Ltd., 2000 U.S. Dist. LEXIS 11881 (S.D.N.Y. 2000); In re Manshul Construction Corp. v. Schulman, 228 B.R. 532 (S.D.N.Y. 1999) (only one shareholder; no disqualification);  In re Berger McGill, Inc., 242 B.R. 413 (S.D. Ohio 1999) (motion to employ counsel granted; court rejected per se approach  in Banks [see following paragraph]); Securities and Exchange Commission v. Credit Bancorp, LTD, 96 F. Supp. 2d 357 (S.D.N.Y. 2000) (involved application of attorney-client privilege); Stokes v. Firestone (In re Stokes), 156 B.R. 181 (E.D. Va. 1993); In re United Utensils Corp., 141 B.R. 306 (W.D. Pa. 1992) (one shareholder; no disqualification); In the Matter of Tetzlaff, 31 B.R. 560 (E.D. Wis. 1983) (no disqualification); Bobbitt v. Victorian House, Inc., 545 F. Supp. 1124 (N.D. Ill. 1982) (no disqualification); Wayland v. Shore Lobster & Shrimp Corp., 537 F. Supp. 1220 (S.D.N.Y. 1982) (no disqualification); Skarbrevik v. Cohen, England & Whitfield, 282 Cal. Rptr. 627 (Cal. App. 1991) (no liability); Meehan v. Hopps, 301 P.2d 10 (Cal. App. 1956) (no disqualification); Mayer-Wittmann Joint Ventures, Inc. v. Gunther Int'l., LTD, 1994 Conn. Super. LEXIS 1507 (Conn. Super. 1994) (no disqualification); Egan v McNamara, 467 A.2d 733 (D.C. App. 1983) (no liability); PMG Collins, LLC v. R & G Enterprises, 2010 Fla. App. LEXIS 2936 (Fla. App. March 10, 2010) (LLC); Rudolf v. Gray, Harrison & Robinson, P.A., 901 So. 2d 148 (Fla. App. 2005) (liability: without more, lawyer for a professional association is not lawyer for the owners); Silver Dunes Condo. of Destin, Inc. v. Beggs & Lane, 763 So. 2d 1274 (Fla. App. 2000) (no liability); Salit v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 742 So. 2d 381 (Fla. App. 1999) (no liability); Brennan v. Ruffner, 640 So. 2d 143 (Fla. App. 1994) (no liability); Fisher v. Grove Farm Co., Inc., 2009 Haw. App. LEXIS 796 (Haw. App. Dec. 29, 2009); Felty v. Hartweg, 523 N.E.2d 555 (Ill. App. 1988) (no liability); Hager-Freeman v. Spircoff, 593 N.E.2d 821 (Ill. App. 1992) (no liability); Goerlich v. Courtney Industries, Inc., 581 A.2d 825 (Md. App. 1990) (no liability); Rabb v. Tuthill, 2012 Mass. Super. LEXIS 287 (Mass. Super. Ct. Nov. 13, 2012); Robertson v. Gaston Snow & Ely Bartlett, 536 N.E.2d 344 (Mass. 1989); Philip Lewis & Sons, Inc. v. Lewis, 2011 Mass. App. Unpub. LEXIS 625 (Mass. App. May 12, 2011); Fassihi v. Sommers, Schwartz, Silver, Schwartz & Tyler, P.C., 309 N.W.2d 645 (Mich. App. 1981) (no liability); Yatooma v. Zousmer, 2012 Mich. App. LEXIS 962 (Mich. App. May 15, 2012) (unless non-client insider "reposes faith, confidence, and trust" in laywer); Holmes v. Winners Entertainment, Inc., 531 N.W.2d 502 (Minn. App. 1995); Carlson v. Fredrikson & Byron, P.A., 475 N.W.2d 882 (Minn. App. 1991) (no liability); TJD Dissolution Corp. v. Savoie Supply Co., Inc., 460 N.W.2d 59 (Minn. App. 1990) (no liability); Terre Du Lac Property Owners' Assoc., Inc. v. Shrum, 661 S.W.2d 45 (Mo. App. 1983) (no disqualification); Waid v. Eighth Judicial Dist. Ct., 119 P.3d 1219, 1223 (Nev. 2005); McCarthy v. Henderson, 587 A.2d 280 (N.J. Super. 1991); Campbell v. McKeon, 2010 N.Y. App. Div. LEXIS 6222 (N.Y. App. Div. July 20, 2010); JSB Partners LLC v. Colabella, 2011 N.Y. Misc. LEXIS 1121 (N.Y. Sup. Ct. March 21, 2011); Clear Channel Spectacolor Media, L.L.C. v. Times Square JV, 2007 N.Y. Misc. LEXIS 6407 (N.Y. Sup. Ct. Sept. 18, 2007) (unusual application of "substantial relationship" test); Purchase Partners II, LLC v. Westreich, 2007 N.Y. Misc. LEXIS 119 (N.Y. S. Ct. Jan. 23, 2007) (not lawyer for the president); Classic Coffee Concepts, Inc. v. Anderson, 2006 NCBC LEXIS 24 (N.C. Super. Dec. 1, 2006); Guehl v. Carrillon House Ass’n, Inc., 2017 WL 2729618 (Ohio App. June 23, 2017) (malpractice: also discussion of privity) Stanley v. Bobeck, 2009 Ohio App. LEXIS 4788 (Ohio App. Oct. 29, 2009) (two shareholders); Maloof v. Benesch, Friedlander, Coplan & Aronoff, 2004 Ohio App. LEXIS 5808 (Ohio App. Nov. 24, 2004) (representing corporation does not mean lawyer is representing the sole shareholder); Stuffleben v. Cowden, 2003 Ohio 6334 (Ohio App. Nov. 26, 2003) (applying principle to attorney-client privilege dispute); Hile v. Firmin, Sprague & Huffman Co., 595 N.E.2d 1023 (Ohio App. 1991); Hatfield v. Seville Centrifugal Bronze, 732 N.E.2d 1077 (Ohio Common Pleas 2000); Seifert v. Dumatic Ind., Inc., 197 A.2d 454 (Pa. 1964); Lively v. Henderson, 2007 Tex. App. LEXIS 8951 (Tex. App. Nov. 13, 2007) (lawyer for corporation does not necessarily owe a fiduciary duty to its sole shareholder); Goeth v. Craig, Terrill & Hale, L.L.P., 2005 Tex. App. LEXIS 2815 (Tex. App. April 14, 2005); Gamboa v. Shaw, 956 S.W.2d 662 (Tex. App. 1997); Bowen v. Smith, 838 P.2d 186 (Wyo. 1992) (no liability).

        Group 2.  In the following cases, the court found that the lawyer did have a duty to constituents of a close corporation client: TransPerfect Global, Inc. v. MotionPoint Corp., 2012 U.S. Dist. LEXIS 129402 (N.D. Cal. Sept. 11, 2012) (law firm could not be adverse to a corporation while it was doing estate planning for the two owners); DeFazio v. Wallis, 2006 U.S. Dist. LEXIS 58258 (E.D.N.Y. Aug. 14, 2006) (court found that CEO of corporate client reasonably believed he, too, was client); Rico Records Distributors, Inc. v. Ithier, 2005 U.S. Dist. LEXIS 19483 (S.D.N.Y. Sept. 8, 2005); Rosman v. Shapiro, 653 F. Supp. 1441 (S.D.N.Y. 1987) (just two 50% shareholders enough to distinguish above cases); Woods v. Superior Court, 197 Cal. Rptr. 185 (Cal. App. 1983) (lawyer could not handle dispute between shareholders); Chyczewski v. Chyczewski, 2015 WL 4575954 (Cal. App. July 30, 2015) (citing Woods; community property interests involved); Opdyke v. Kent Liquor Mart, Inc., 181 A.2d 579 (Del. 1962) (lawyer had acquired interest adverse to client); Eleventh St. Loftominium Ass’n v. Wabash Loftominium, L.L.C., 876 N.E.2d 65 (Ill. App. 2007); Schaeffer v. Cohen, Rosenthal, Price, Mirkin, Jennings & Berg, P.C., 541 N.E.2d 997 (Mass. 1989) (lawyer may have fiduciary duty to shareholders of close corporation);  Fassihi v. Sommers, Schwartz, Silver, Schwartz & Tyler, P.C., 309 N.W.2d 645 (Mich. App. 1981) (50% shareholder not a client, but lawyer has fiduciary duty to the shareholder); Detter v. Schreiber, 259 Neb. 381, (2000) (lawyer was not clear as to who was the client); Barmash v. Perlman, No. 650417/2013 (N.Y. Sup. Ct. Oct. 3, 2013); Flores v. Willard J. Price Associates, LLC, 799 N.Y.S.2d 43 (N.Y. App. 2005) (lawyer for corporation in effect lawyer for majority shareholder/President; lawyer for LLC in effect lawyer for sole member); Wander v. Meier, 793 N.Y.S.2d 406 (N.Y. App. 2005); Morris v. Morris, 763 N.Y.S.2d 622 (N.Y. App. 2003); Matter of Greenberg, 614 N.Y.S.2d 825 (N.Y. App. 1994) ("One who has served as attorney for a corporation may not represent an individual shareholder in a case in which his interests are adverse to other shareholders."); In Re Bowman Trading Co., Inc., 471 N.Y.S.2d 289 (N.Y. App. 1984) (lawyer for close corporation disqualified because of confidences received from adverse shareholder); Hakimian Mgm’t. Corp. v. Richard C. Fiore, Inc., 2007 N.Y. Misc. LEXIS 4844 (N.Y. S. Ct. July 9, 2007);  Sturm v. Sturm, 574 N.E.2d 522 (Ohio 1991) (followed Woods, infra); In re Brownstein, 602 P.2d 655 (Ore. 1979) and In re Banks, 584 P.2d 284 (Ore. 1978) (discipline appropriate where relationships so close) (but, see Ore. Op. 1991-85, which seems to put Oregon with the majority position of the decisions in the prior paragraph); Margulies v. Upchurch, 696 P.2d 1195 (Utah 1985) (firm disqualified); Committee on Legal Ethics v. Frame, 433 S.E.2d 579 (W. Va. 1993) (lawyer disciplined for being adverse to a person who was the majority shareholder of a close corporation client); Meyer v Mulligan, 889 P.2d 509 (Wyo. 1995) (summary judgment for the lawyer for the corporation reversed because it was not clear who else, if anyone, the lawyer represented); Watt v. Nicholls, 2011 ONSC 2814 (CanLII) (Ont. Super. Ct. May 5, 2011) (where lawyer for company receives personal confidences from constituents); Racey v. Racey, 2007 CanLII 47156 (Ont. Super. Ct. Oct. 17, 2007); Canadian Arctic Trading House Ltd. v. Brownstein, 2007 CanLII 36075 (Ont. Super. Ct. Aug. 31, 2007) (50% shareholder a "near client."); CLS Catering Services Ltd. v. Mahil, 2010 BCSC 1441 (CanLII) (S. Ct. B.C. Oct. 15, 2010) (1/2 owner a “near client;” entitled to confidentiality).

        Not a "Near Client." Richard Zokol Ents. Ltd. v. Sagebrush Golf & Sporting Club Ltd., 2014 BCSC 1666 (CanLII) (S. Ct. B.C. Sept. 2, 2014). Zokol had been a high-ranking officer of Sagebrush for some period of time. Law Firm represented Sagebrush for much of that time and worked closely with Zokol on Sagebrush matters. Law Firm never represented Zokol in his personal matters. In this case Law Firm represents Sagebrush against Zokol. Zokol moved to disqualify Law Firm. In a fact-intensive analysis the court in this opinion denied the motion. The court found that Zokol had not been a “near client” of Law Firm, primarily because he did not make the kind of personal confidential disclosures to Law Firm while he was at Sagebrush that would be prejudicial to Zokol.

        Sickler v. Kirby, 2011 Neb. App. LEXIS (Neb. App. Nov. 8, 2011).  The facts and issues in this lawyer malpractice case are a bit convoluted, so this description will focus on a couple of points of particular interest to this audience.  B&F was a closely-held corporation owned by H and W.  Law Firm screwed up franchise documents for B&F.  B&F, H, and W sued Law Firm for malpractice.  The trial court gave Law Firm a summary judgment.  In this opinion the appellate court reversed.  The issue of interest is whether Law Firm, which clearly represented B&F, also owed a duty of care to H and W.  The appellate court said yes.  The principal analysis assumed H and W were not clients and went on to consider whether H and W were within a category of non-clients to whom Law Firm owed duties.  The court held that whether Law Firm owed duties to H and W were fact issues to be determined at trial.

        Transperfect Global, Inc. v. Motionpoint Corp., 2012 U.S. Dist. LEXIS 85649 (N.D. Cal. June 20, 2012).  This is a patent infringement matter between Co. A and Co. B.  Co. B. is represented by Law Firm.  After this case began, Lawyer moved from a prior law firm to Law Firm.  While at Law Firm, Lawyer continued to do estate planning for the co-owners and co-CEOs of Co. A.  Co. A moved to disqualify Law Firm.  In this opinion the magistrate judge granted the motion.  The court said that Law Firm, in effect, was also representing Co. A, because Lawyer's services to the co-owners/co-CEOs of Co. A were inextricably related to Co. A.  Thus, Law Firm had a current client conflict and had to be disqualified.

        Rice v. Smith, 2013 ONSC 1200 (CanLII) (Ont. Super. Ct. Feb. 25, 2013).  Dispute among the three owners of Corp.  Lawyer attempted to represent the two majority owners and Corp.  In this opinion the court ruled that Lawyer could not do this.  The court held that Lawyer would most likely be an important witness at the trial.  The court also noted those Canadian authorities that hold that a lawyer may not represent a corporation and one of the feuding factions.

        Trifidus Inc. v. Samgo Innovations Inc., 2011 NBCA 59 (CanLII) (N.B. Ct. App. July 7, 2011).  A defendant in this action ("Gaudet") moved to disqualify the lawyer for the plaintiffs ("Lawyer").  Earlier Lawyer had represented Gaudet in the purchase of a residence.  Lawyer had also assisted Gaudet and another gentleman ("OG"), who is also a plaintiff in this case, in creating a corporation ("Corporation"), which is also a plaintiff in this case.  Upon creation of Corporation Gaudet and OG became equal shareholders.  The trial court granted the motion to disqualify.  In this opinion the appellate court affirmed.

        In Sessions v. Espy, 584 So. 2d 515 (Ala. 2002), the court held that there was not enough evidence to determine whether the lawyer also represented a shareholder.

        Mutual Insurance Company Same as Corporation.  Murray v. Metro. Life Ins. Co., 2009 U.S. App. LEXIS 21315 (2d Cir. Sept. 29, 2009).

       Incorporated Associations.  Shadow Isle, Inc. v. American Angus Ass'n., 1987 U.S. Dist. LEXIS 8590 (W.D. Mo. 1987), involved an incorporated trade association.  Sayyah v. Cutrell, 757 N.E.2d 779 (Ohio App. 2001), involved an incorporated property owners' association.  In each case the court held that the lawyer for the association was not thereby a lawyer for the members.

       Credit Index, L.L.C. v. RiskWise International L.L.C., 744 N.Y.S.2d 326 (N.Y. App. July 2, 2002).  The defendant's law firm had represented the majority shareholder of the plaintiff on a matter substantially related to this case.  The majority shareholder remains a current client of the firm.  For those reasons, the court affirmed the trial court's order granting the plaintiff's motion to disqualify the firm.

       Excellent Analysis of Who Is Client.  Rallis v. Cassady, 84 Cal. App. 4th 285, 100 Cal. Rptr. 2d 763 (Cal. App. 2000).  This decision deals with a Statute of Limitations issue, but is an excellent primer on how a lawyer who thought he represented only a corporate entity can morph into lawyer for one of its employees.  The court describes the following situations that could lead to this result and cites cases for each: (1) the lawyer has represented the individual in the past over a long period of time or in several matters; (2) the lawyer has repeated contacts with the individual while representing the corporation; (3) the individual had a particular personal interest in the matter, but did not have independent counsel; (4) the corporation gave the individual advice while representing the corporation; (5) the individual disclosed confidential information to the lawyer; or (6) the individual paid part of the lawyer's fees.

        Another Excellent Analysis of Who Is Client, but Using Different Factors.  Atlas Partners II, L.P. v. Brumberg, Mackey & Wall, PLC., 2006 U.S. Dist. LEXIS 983 (W.D. Va. Jan. 6, 2006).  This is a legal malpractice case arising out of the creation of a series of LLCs as investment vehicles.  The issue in the case relevant to us is whether the plaintiff, Atlas Partners II, Limited Partnership (“Atlas Partners”), the principal member of the LLCs, was a client of defendant law firm (“Brumberg”), and, therefore, able to sue Brumberg for malpractice.  Brumberg admitted it represented the new LLCs, but denied representing Atlas Partners.  All of Brumberg’s communications with Atlas Partners were through one Robert Jordan.  Although Jordan was not the general partner of Atlas Partners, he was authorized by the general partner to act on behalf of Atlas Partners.  Brumberg, denying a lawyer-client relationship with Atlas Partners, moved for summary judgment on that and other bases.  The court denied that part of the motion, noting the following: (1) a lawyer-client relationship need not be express; it can be implied or inferred from the circumstances; (2) Brumberg was the only law firm involved in the transactions; (3) Brumberg had multiple clients in many of the transactions; (4) Brumberg used no engagement letters in the any of the transactions; (5) Brumberg did not discuss whether or not it had a lawyer-client relationship with any of the parties; and (6) Brumberg knew its fees originated with Atlas Partners.  (The court acknowledged that who pays the fees in not always determinative, but said that that factor, along with the others, made it impossible to grant summary judgment.)

        Assisting Corporate Squeeze-Out.  Granewich v. Harding, 985 P.2d 788 (Ore. 1999) deserves separate mention.  A law firm represented a close corporation.  A minority shareholder sued the law firm for "aiding and assisting" the majority shareholder in breaching his fiduciary duty to the minority shareholder.  The court held that the complaint stated a cause of action.  Another similar result is in Reis v. Barley, Snyder, Senft & Cohen LLC, 484 F. Supp. 2d 337 (E.D. Pa. 2007) ; however, the court rejected the theory in LeRoy v. Allen, Yurasek & Merklin, 872 N.E.2d 254 (Ohio 2007).

        Representing Incorporators - "Relation Back."  Jesse v. Danforth, 485 N.W.2d 63 (Wis. 1992); and Manion v. Nagin, 394 F.3d 1062 (8th Cir. 2005). In Jesse, a law firm had represented several doctors in setting up a corporation.  After the corporation was formed, the firm represented only the corporation.  Later the firm brought a medical malpractice action against two of the incorporators.  They moved to disqualify the firm, based upon the earlier representation.  The court ruled that the firm should not be disqualified.  As to the earlier representation of the incorporators, the court said:

[W]here (1) a person retains a lawyer for the purpose of organizing an entity and (2) the lawyer's involvement with that person is directly related to that incorporation and (3) such entity is eventually incorporated, the entity rule applies retroactively such that the lawyer's pre-incorporation involvement with the person is deemed to be representation of the entity, not the person.

        In Manion the court mentioned Jesse approvingly, but ruled the lawyer had given the incorporator too much individual advice to claim he represented only the entity.  Ariz. Op. 02-06 (September 2002) also follows Jesse.  A limited partnership case that seems to recognize the same concept is Buehler v. Sbardellati, 34 Cal. App. 4th 1527 (1995).  Not so in Classic Ink, Inc. v. Tamp Bay Rowdies, 2010 U.S. Dist. LEXIS 75220 (N.D. Tex. July 23, 2010), a case involving the formation of an LLC. In Zimak v. 4244354 Manitoba Ltd., 2014 MBQB 96 (CanLII) (Ct. Q.B. Man. May 5, 2014), the court found no individual representation, but did not mention the foregoing analysis. In Lani v. Schiller Kessler & Gomez, PLC, 2017 WL 938327 (W.D. Ky. March 9, 2017), there was wording in one of the formation documents that the law firm setting things up did not represent the individual members, and the court enforced it, denying disqualification.

        Representing "Special Committees" of the Board in InvestigationKirschner v. K&L Gates LLP, 2012 Pa. Super. LEXIS 541 (Super. Ct. Pa. May 14, 2012).  Because of all the circumstances, the court held that although the law firm felt it represented the special committee and not the company, the company could sue the law firm for conducting a flawed investigation.

        In In re Ralph Roberts Realty, LLC, 2013 Bankr. LEXIS 1003 (E.D. Mich. March 18, 2013), a bankruptcy judge held that being adverse to a corporation of which a current client is 100% owner is being directly adverse to the current client.

        Brennan v. Brennan, 2013 U.S. Dist. LEXIS 64390 (E.D. La. May 6, 2013).  This is a dispute over control of a closely held corporation ("Corp.").  Family Faction A sued Family Faction B to establish ownership of Corp.  Law Firm filed this action on behalf of Faction A and Corp.  Faction B moved to disqualify Law Firm from representing Corp.  In this opinion the court granted the motion.  The court held that Corp. could not consent to Law Firm's representation because Faction A's power to cause Corp. to hire Law Firm is itself an issue in this case.

        Spring v. Board of Trustees of Cape Fear Cmty. Coll., 2015 WL 5562293 (E.D.N.C. Sept. 21, 2015). The former president of College (“Plaintiff”) sued the board and its members for employment-related causes of action. Law Firm appeared in this case for all defendants. Plaintiff moved to disqualify Law Firm claiming he was a former client of Law Firm. Plaintiff did, for several years, consult with Law Firm about College matters. In this opinion the court denied the motion because Plaintiff failed to show that any belief, if any, that Law Firm was representing him individually was “reasonable.”
       
        Limited Liability Companies.  In Classic Ink, Inc. v. Tamp Bay Rowdies
, 2010 U.S. Dist. LEXIS 75220 (N.D. Tex. July 23, 2010), and Flores v. Willard J. Price Associates, LLC, 799 N.Y.S.2d 43 (N.Y. App. 2005), the court held that the sole member of an LLC was, thereby, a client of the lawyer for the LLC.  Finkelman v. Greenbaum, 836 N.Y.S.2d 484 (N.Y. Misc. 2007) (lawyer for LLC could not represent one member adverse to others).  In Steven's Distributors, Inc. v. Gold Rosenblatt & Goldstein, 2010 N.Y. Misc. LEXIS 3336 (N.Y. Sup. Ct. July 19, 2010), the court held that a law firm could not be adverse to an LLC while it is representing its only two members.  In Abselet v. Satra Realty, LLC, 2011 App. Div. LEXIS 5230 (N.Y. App. Div. June 16, 2011), the court held that a lawyer for the LLC could be adverse to a 1/3 owner. In Gordon v. Obiakor, 2014 N.Y. App. Div. LEXIS 3163 (N.Y. App. Div. May 7, 2014), the court held that a lawyer for an LLC could not be adverse to one of two members in a fight with the other.  In Patrick v. Ressler, 2001 Ohio App. LEXIS 4403 (Ohio App. 2001), and in Chaiklin v. Bacon, 2000 Conn. Super. LEXIS 1729 (Conn. Super. 2000), the court held that a lawyer who previously represented an LLC could not represent members of the LLC against a former member on LLC-related matters.  But, in Legal Aid Society of Cleveland v. W&D Partners I, LLC, 834 N.E.2d 850 (Ohio App. 2005), the court held that a member of an LLC could not sue the former lawyer for the LLC, because the member of the LLC was never a client.  To similar effect are Wild Game Ng, LLC v. Wong’s Int’l. (USA) Corp., 2006 U.S. Dist. LEXIS 86913 (D. Nev. Nov. 29, 2006), Blanton v. Prins, 938 So. 2d 847 (Miss. 2005); Shah v. Ortiz, 2013 N.Y. Misc. LEXIS 3204 (N.Y. Sup. Ct. July 22, 2013); Lio v. Zhong, 814 N.Y.S.2d 562 (N.Y. Misc. 2006).  In Hackett v. Feeney, 2010 U.S. Dist. LEXIS 113553 (D. Nev. Oct. 18, 2010), the court held that, for conflicts purposes, a lawyer for an LLC is not, thereby, lawyer for the owners.  A similar result was in Eternal Preservation Associates, LLC v. Accidental Mummies Touring Co., LLC, 2011 U.S. Dist. LEXIS 197 (E.D. Mich. Jan. 3, 2011).  In White v. Barbieri, 2012 Kan. App. Unpub. LEXIS 776 (Kan. App. Sept. 7, 2012), the court held, among other things, that a member, and 25% owner, of an LLC could not sue the LLC's lawyer directly for malpractice.

        Another LLC Case.  Bottoms v. Stapleton, 706 N.W.2d 411 (Iowa 2005).  A 49% owner of an LLC sued the 51% owner and the LLC.  The plaintiff sought money damages from the individual defendant and injunctive relief from the LLC.  It was not a derivative action.  Law Firm filed an answer for both defendants.  The plaintiff moved to disqualify Law Firm from representing the LLC.  The trial court granted the motion.  The Iowa Supreme Court reversed.  The court analyzed the issues in light of Iowa’s new Rule 1.7, which is the same as the new version of ABA Model Rule 1.7.  The court said that currently the interests of the defendants did not conflict, but conceded that there was a “potential” conflict.  The court went on to say that “potential” conflicts are “foreign” to Rule 1.7, and that the plaintiff could re-file his motion if an actual conflict developed.  Frank Settelmeyer & Sons, Inc. v. Smith & Harmer, Ltd., 2008 Nev. LEXIS 116 (Nev. Dec. 24, 2008), followed Bottoms insofar as making a distinction between a dissolution action and derivative action.

        Razin v. A Milestone, LLC, 2011 Fla. App. LEXIS 12309 (Fla. App. Aug. 5, 2011).  LLC had two managing members, A and B.  A had lent LLC $1,000,000.  LLC went into default.  A commenced a collection action and hired Lawyer to represent LLC.  In this opinion the court held that the operative documents and pertinent Florida statutes authorized A to hire Lawyer.  The court saw no evidence of a conflict of interest.

        Shuttleworth v. Rankin-Shuttleworth of Ga., LLC, 2014 Ga. App. LEXIS 461 (Ga. App. July 8, 2014). Individuals A and B owned LLC, an insurance business. Lawyer advised LLC on a wide variety of matters, and when LLC, A, and B were sued for unlawful competition (not this case), Lawyer represented all three. After a falling-out A sued B (this case). Lawyer appeared for B. A moved to disqualify Lawyer. The trial court granted the motion. In this opinion the appellate court affirmed. The substantial relationship analysis was straightforward.

       Residential Cooperative Corporations.  In Ryfun v. 406 W. 46th St. Corp., 732 N.Y.S.2d 216 (N.Y. App. 2001), the court held, in effect, that a lawyer for a residential cooperative corporation did not necessarily represent the shareholders of the corporation.  Likewise, see In re Voss, 740 N.Y.S.2d 371 (N.Y. App. 2002).

       School Boards.  Suing School Board Is not Suing an Individual Board Member.  Culbreth v. Covington Bd. of Educ., 2007 U.S. Dist. LEXIS 78781 (E.D. Ky. Oct. 24, 2007).

        Covered by letter.  Lewis v. Professional Audio Concepts, Inc., 2002 Cal. App. Unpub. LEXIS 9619 (Cal. App. October 17, 2002).  The lawyer informed the majority shareholder in a letter that the lawyer would represent the corporation and the majority shareholder "as an officer and director" but not "as a shareholder."  The court held that there was, therefore, no lawyer-client relationship between the lawyer and the majority shareholder.

        Merely Voting a Minority Shareholder's Proxy not the Same as Representing Corporation.  McClain v. TP Orthodontics, 2008 U.S. Dist. LEXIS 3869 (N.D. Ind. Jan. 17, 2008).

        All Shareholders Must Agree to Conflicts Waiver.  Williams v. Stanford, 2008 Fla. App. LEXIS 4242 (Fla. App. March 25, 2008).

        Possibly Holding that Minority Shareholder and Corporation are One for Conflicts Purposes.  Pilgrim v. Pilgrim, 2008 NLTD 162 (CanLII) (S. Ct. Newfoundland & Labrador Oct. 21, 2008).

        Single-Purpose Entity.  Terracap v. 2811 Development Corp., 2010 ONSC 1183 (CanLII) (Super. Ct. Ont. Feb. 22, 2010).  Action for specific performance of a contract.  Law Firm represents the defendant.  The plaintiff is a single purpose entity, which is part of a group of entities all controlled by one Larry Krauss and his family.  Because Law Firm represents other parts of the Krauss group, and answers to Krauss personally in those matters, the master here granted the plaintiff's motion to disqualify Law Firm.

        Axon v. Axon, No. 53650/09 (Kings Co.) (N.Y. S. Ct. May 24, 2010).  Matrimonial action.  Law Firm represents W.  Law Firm has represented Company in one litigation, and continues to represent Company in another.  H is the majority shareholder of Company, its president, and its chairman of the board.  He has been substantially involved in Company for many years.  H moved to disqualify Law Firm in this case because of its representation of Company.  In this opinion the court denied the motion for three reasons.  First, Law Firm never represented H directly.  Second, there was no showing that Law Firm gained significant information about H in the Company representations.  Third, there was no showing that the litigation Law Firm was handling for Company was related to this matrimonial action.  In order to ensure that Law Firm did not abuse its position, the court ordered Law Firm to create a screen between the lawyers representing Company and the lawyers in this case.

        Discipline.  In re Shirley, 2010 Ind. LEXIS 431 (Ind. Aug. 5, 2010).  Disciplinary proceeding.  Lawyer had represented a family-owned corporation and one of the members of the family (not the matriarch).  Over several years Lawyer took actions adverse to the corporation, the matriarch, and other members of the family.  The matter came to the Indiana Supreme Court pursuant to an agreement that Lawyer would be suspended for 30 days.  In this opinion approving the agreement the court noted that the punishment would have been more severe had there been no agreement.  This is the second case in the last few months in which discipline resulted primarily because of a lawyer's insensitivity to conflicts rules.  The other was In re Savin, 2010 Minn. LEXIS 185 (Minn. April 7, 2010).

        Oppression Action.  Amack v. AW Holdings Corp., 2011 ABQB 376 (Q.B. Alberta June 14, 2011).  This is an action by a minority shareholder against the corporation and the majority shareholder for oppression.  In this opinion the court held that the same law firm could not act for the corporation and the majority shareholder where conflicts between the corporation and majority shareholder are likely.

        Korf Family Trust v. Mellor, 2012 SKQB 197 (CanLII) (Q.B. Sask. May 11, 2012).  Suit over validity of certain shares in Corporation.  One faction moved to disqualify the law firm for the corporation because that firm was also representing one corporate insider against another in a suit for defamation.  In this opinion the court held that the two representations do not necessarily constitute a conflict of interest.

        Dissolution ActionFerolito v. Vultaggio, 2012 N.Y. App. Div. LEXIS 5629 (N.Y. App. Div. July 24, 2012).  Corp. had equal owners, A and B.  B ran the day-to-day operations of Corp.  A brought this action for dissolution of Corp., among other things.  Corp. and owner B signed a "Joint Defense and Prosecution Agreement," which provided that Law Firm would represent both, and which waived any conflicts.  A moved to disqualify Law Firm, which the trial court denied.  In this opinion the appellate court affirmed, holding that Law Firm complied with the waiver requirements of New York Rule 1.7(b).

        Union. Anderson v. Mercer Co. Sheriff’s Dept., 2014 U.S. Dist. LEXIS 71776 (D.N.J. May 27, 2014). Race discrimination/employment case against sheriff’s personnel and against Union. Plaintiff belongs to Union. Union is being represented by Law Firm, Union’s regular counsel. Plaintiff moved to disqualify Law Firm, claiming it represented her. In this opinion the court denied the motion, holding that a lawyer for a union is not, ipso facto, lawyer for union members.

        Oppression Action.  Hames v. Greenberg
, 2013 ONSC 4410 (CanLII) (Ont. Super. Ct. July 24, 2013).  Doubting the precedential value of this opinion, we will make no attempt at completeness here.  The opinion involves the following: (1) the extent to which a lawyer's duty to former clients goes beyond confidences; (2) the ways a lawyer's prior representation of a corporation may not disqualify the lawyer from opposing the corporation's owner; and (3) the ways in which a lawyer's attempt to represent defendant corporations and individual defendants may raise conflict of interest issues.

        M’Guiness v.Johnson, 2015 WL 9583486 (Cal. App. Dec. 30, 2015). Corp. had three equal shareholders, A, B, and C. A dispute arose, and A sued B and Corp. B, represented by Law Firm, cross-claimed against A, C, and Corp. Law Firm began representing Corp. in 2006. A, C, and Corp. moved to disqualify Law Firm in this case. The trial court denied the motion. In this opinion the appellate court reversed. The focus was upon whether Law Firm’s representation of Corp. is still in existence, thus creating a current client conflict. In a very fact-specific analysis the appellate court found that the representation did continue, even though Law Firm and Corp. had no matter pending. One important factor was the wording of the fee agreement. The court found that the “engagement was a broad and open-ended one.” Another factor was that a portion of a retainer remained in Law Firm’s trust account.       
       
        Ethics Opinions
Alaska Op. 2012-3 (2012); Cal. Op. 2003-163 (2003) (discussing lawyer’s obligations when representing the corporation and an officer).  Cal. Op. 1999-153 (1999) says that a lawyer for a close corporation may represent it and a shareholder against another shareholder.  D.C. Op. 216 (1991) involves a corporation with two 50% shareholders.  Where a bank seized the shares of one of them to collect a debt, the lawyer for the corporation could represent the corporation against the bank.  Ore. Op. 1991-85 holds that lawyer may be able to represent one of the parties adverse to another.  Mo. Op. 2000061 (2000) and R.I. Ops. 2003-02 (2003) & 93-58 (1993) say that a lawyer for a close corporation may not represent one of several shareholders against the others without the others' consent.  But, in R.I. Op. 2005-10 (Nov. 10, 2005), the committee said that shareholders of a former client close corporation could not complain about lawyer's current representation.  Va. Op. 1517 (1993) says that the lawyer for a close corporation can represent one shareholder in litigation against the other, so long  as the lawyer has not obtained confidences from the other.  D.C. Op. 328 (April 2005) considers the conflicts issues raised by a lawyer’s representation of a constituent of an organization (director, officer, owner, etc.), and not the organization, on matters relating to the organization.  It says that while a lawyer may represent the constituent and not the organization, the lawyer must carefully document that the relationship to avoid misunderstandings.  The opinion then goes on to consider the circumstances under which the lawyer can then be adverse to the organization.   Ala. Op. RO-2007-04 (Aug. 2007).  Lawyer represents corporation with four shareholders.  Several of the shareholders are feuding.  In  this opinion the Bar Counsel opines that Lawyer can continue representing the corporation and do legal work for one of the feuding factions on non-corporate matters.  N.Y. City Op. 2008-2 (Sept. 2008) discusses the extent to which an in-house lawyer may represent other members of a corporate family.  N.Y. Op. 901 (December 2011) discusses the extent to which a lawyer may represent a corporation after having represented an officer of the corporation, and the extent to which a lawyer may represent both the corporation and the officer at the same time.  Vt. Op. 2009-4 (undated) (lawyer for "principal" owner of a corporation does not necessarily represent the corporation).

        Treatise.  Hazard, Hodes, & Jarvis §§ 17.13-17.14.

        Law Reviews. Joan C. Rogers, Corporate Counsel Multiple Representation, 30 Law. Man. Prof. Conduct 303 (May 7, 2014); William H. Simon, Whom (or What) Does the Organization’s Lawyer Represent? An Anatomy of Intra-Client Conflicts, 91 Cal. L. Rev. 57 (2003).  An article critical of the entity rule as applied to close corporations is, Lawrence E. Mitchell, Professional Responsibility and the Close Corporation: Toward a Realistic Ethic, 74 Cornell L.Rev. 467 (1989).  For another approach, see Ibrahim, Solving the Everyday Problem of Client Identity in the Context of Closely Held Businesses, 56 Ala. L. Rev. 181 (2004). 

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