Does the Attorney for a Close Corporation Owe the Minority Shareholders a Fiduciary Duty?

by Lee Gesmer on September 28, 2006

Fiduciary Duty. As a recent case shows, the answer is: it depends.

Assume that you are the attorney for a closely-held corporation (a privately held corporation with a small number of active shareholders), and you have interacted with and provided corporate legal advice to the shareholders over the years. Even though you did not represent them personally, the shareholders placed their trust and confidence in you. A dispute then arises between one of the shareholders (who has a minority position) and the corporation. Can you represent the corporation in this dispute, or do you have a fiduciary duty to the minority shareholder that presents a conflict of interest, and precludes you from the representation?

An article by Massachusetts Bar Counsel written in 2003, Closely Held Conflicts, reviews the case law on this issue (which has developed mostly in the context of motions to disqualify counsel), and sends a clear warning that attorneys who have represented a closely held corporation most likely do owe a fiduciary duty to the shareholders.

However, a recent decision by Superior Court Judge Francis R. Fecteau draws an important distinction to keep in mind when this issue arises. In that case, Bensetler v. Data Plus, Judge Fecteau found that attorneys who represented a closely held corporation did not have a fiduciary duty to a minority shareholder with whom they had never interacted. Thus, at least according to this case, there is no per se rule on this issue, and depending on the level of interaction, there may be circumstances under which an attorney who has represented a close corporation may represent the corporation in a suit adverse to a minority shareholder.

UPDATE: Here is a link to Superior Court Judge’s Christine Roach’s Memorandum of Findings and Ruling, dated October 8, 2008, ruling for the defendants following a bench trial.

Previous post:

Next post: