What are the consequences for a corporate lawyer (S-Corp) representing one of the shareholders & in turn hurting the others?

Asked over 1 year ago - Saint Francis, MN

The other shareholders have been financially & have extreme emotional distress from the corporations lawyer representing a shareholder.

Attorney answers (4)

  1. Ricardo O'Neil Bernard

    Contributor Level 6

    3

    Lawyers agree

    Answered . If this is a case where the attorney was first counsel for the company then advised one of the shareholders(at the detriment of the company) there may be some ethical issues implicated here. As a general rule, an attorney must receive a waiver when representing two clients who may have adverse interests. If the clients consent to any necessary limitation on the scope of the representation and the potential future need for separate representation, and that the lawyer will be able to zealously represent each client then the lawyer may proceed.

    If in this case, the lawyer failed to represent the company's best interest(and was engaged to do so) you may have a case for breach of ethical duty.

  2. Thomas Michael Fafinski

    Pro

    Contributor Level 9

    1

    Lawyer agrees

    Answered . The lawyer has a fiduciary obligation to the corporation. The obligation requires a duty of loyalty, accountability and competence. The duty does not run to the other shareholders. If the conduct violates the duty of loyalty, which is the closest possibility, there can be a complete fee forfeiture under Tarnowski v. Resop, a 1956ish Minnesota Supreme court case, or actual damages. You could seek to have the lawyer disqualified in any proceeding too.

  3. Ian Edmund Scott

    Contributor Level 12

    1

    Lawyer agrees

    Answered . I agree with my colleague.

    The content of this answer has been prepared by Scott Legal Services, P.C. for general informational purposes only.... more
  4. Stephen Samuel Messutta

    Contributor Level 16

    1

    Lawyer agrees

    Answered . The type of corporation (c or s) really doesn't matter. The real question is whether the attorney represented the corporation, or the shareholder. The fact that an attorney may represent a shareholder in suing the corporation and there are economic consequences has no impact on the attorney, or the shareholder, unless the legal action was dreadfully wrongful in some way. The fact that other shareholders are "hurt" is the nature of a lawsuit. If the attorney attempts to represent BOTH the corporation and shareholder, however, that would be a conflict of interest most likely and there are ethical and licensing issues involved but there is insufficient information to discuss that. If there is no conflict but the lawsuit was "specious" or "vexatious" (basically without basis) then a court may award attorney fees to the other shareholders. As to "extreme emotional distress" and while there is a cause of action that is in tort for such issues, you give no information that would even begin to suggest that a lawsuit for such an "independent" tort may exist.

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