In Baker v. Wilmer Cutler Pickering Hale and Dorr LLP,[1] the Massachusetts Appeals Court held that an attorney for a limited liability company owed a fiduciary duty to its minority members. I believe it’s clear that this ruling would apply to corporations and its shareholders

In Schaefer v. Cohen, Rosenthal, Price, Mirkin, Jennings & Berg, P. C[2]. the Supreme Judicial Court, in dictum, stated that there could be a duty of corporate counsel to the minority shareholders.   The Court stated:

[T]here is logic in the proposition that, even though counsel for a closely held corporation does not by virtue of that relationship alone have an attorney-client relationship with the individual shareholders, counsel nevertheless owes each shareholder a fiduciary duty . . . Just as an attorney for a partnership owes a fiduciary duty to each partner, it is fairly arguable that an attorney for a close corporation owes a fiduciary duty to the individual shareholders.

In Baker, the Appeals Court adopted this rationale and stated whether such a fiduciary relationship to, in the case of individual members of a limited liability company, exists, is “largely a question of fact.” Reversing the granting of a motion to dismiss, the Appeals Court found that when the majority members secretly retained the attorneys to represent the company, then the attorneys worked to assist the majority to extinguish rights of the minority, a claim against the attorneys could exist. The Court held that the complaint stated a claim for the attorneys’ breach of fiduciary duty, as well as a claim for aiding and abetting such breach, conspiracy and violation of M. G. L. c. 93A.

As a practical matter this case may prove troubling for lawyers who represent close corporations and who assist in action at the request of the controlling person or group. While the facts in that case are more than somewhat extreme and the case was positioned upon a motion to dismiss, until some flesh is put on the bones of this case, the lawyer acts at his or her peril. The ruling is salutary, however, and a real benefit to improving corporate governance.

I represent primarily close corporations. I tell its shareholders that I represent the company and that when I believe that a shareholder has an interest adverse to another, I explicitly note the conflict and suggest that the adversely affected shareholder obtain counsel.   This has always been good practice and the Baker decision will only cause me to put the foregoing in writing.   I will also be more insistent on requesting potentially adversely affected shareholders to retain separate counsel.

[1]           91 Mass. App. Ct. 835 (2017).

[2]           405 Mass. 506, 541 N. E. 2d 997 (1989).

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