Brief Fact Summary.
Fassihi (Plaintiff) was a 50 percent shareholder whose membership in a closely held medical corporation was terminated, prompting the suit he filed against the corporation’s law firm for breach of fiduciary, legal, and ethical duties and for fraud.
Synopsis of Rule of Law.
A law firm of a closely held corporation may owe a fiduciary duty to a 50 percent shareholder, even though it generally represents the corporation and not its individual shareholders.
Doctors Fassihi (Plaintiff) and Lopez, radiologists and equal shareholders in a professional medical corporation, were also on the staff of St. Mary’s Hospital.Â The law firm of Sommers, Schwartz, Silver, Schwartz and Tyler, P.C. (Sommers) (Defendant) represented the corporation.Â Sommers (Defendant) never disclosed to Fassihi (Plaintiff) that it also represented Lopez individually or that Lopez’s agreement with the hospital gave him personal and sole responsibility for the radiology department.Â Approximately eighteen months after they formed the corporation, Lopez arranged to terminate, with Sommers’s (Defendant) help, Fassihi’s (Plaintiff) interest in the corporation, at which time the hospital informed Plaintiff that he could no longer practice there.Â In the lawsuit that followed, Plaintiff claimed that Defendant had represented both Lopez individually and the professional corporation without telling him and that he, Plaintiff, had an attorney-client relationship that Defendant had breached.Â The court denied both Defendant’s motion for summary judgment and Plaintiff’s motion to compel discovery when Epstein, an attorney with Sommers (Defendant), claimed attorney-client privilege.Â The court then granted leave for these interlocutory appeals
May a law firm of a closely held corporation owe a fiduciary duty to a 50 percent shareholder, even though it generally represents the corporation and not its individual shareholders?
(Per curiam)Â Yes.Â A law firm of a closely held corporation may owe a fiduciary duty to a 50 percent shareholder, even though it generally represents the corporation and not its individual shareholders.Â Because the attorney’s client is the corporation, there was no attorney-client relationship between Fassihi (Plaintiff) and Sommers (Defendant).Â However, that did not necessarily mean that Defendant had no fiduciary duty to Plaintiff.Â Defendant also had an obligation to disclose to Plaintiff its dual representation of the corporation and Lopez individually.Â Defendant did not have an obligation to divulge the contents of the Lopez-St. Mary’s contract since that information arose out of its confidential relationship with Lopez.Â But, as a member of the board of directors, Fassihi (Plaintiff) was entitled to any communications regarding his dismissal from the corporation, and Sommers (Defendant) may not assert the attorney-client privilege in that matter.Â In addition, Plaintiff’s allegations were enough to prevent Defendant from invoking the privilege because the attorney-client privilege does not protect communications made for the purpose of perpetrating a fraud.Â Motion for summary judgment is denied
When an entity is small, it is not practical to conclude that counsel to a corporation whose officers and shareholder consist of only two people â€œrepresents the organization acting through its duly authorized constituents,â€ as the Model Rule 1.13(a) directs.Â Other courts considering the problem have held that such counsel represents the individual shareholders as clients jointly with the closely held corporation.Â In other words, it is not unreasonable for a 50 percent shareholder to believe that the corporation’s lawyer is in effect his own individual attorney.