» Corporation’s Attorney Owed No Legal Duty to Minority Shareholder

Corporation’s Attorney Owed No Legal Duty to Minority Shareholder

On August 21, the Texas Court of Appeals at Dallas, Texas turned away a disgruntled shareholder’s legal malpractice complaint against the corporation’s outside counsel, finding that no attorney-client relationship existed between the attorney and the shareholder.

Curtis Pennington, a minority shareholder who was ousted from the board of directors and as president of Advantage Marketing and Labeling Inc., alleged that attorney Michael Collins negligently advised two other shareholders (who, together, owned a controlling interest in the corporation) to engage in oppression and breaches of their fiduciary duties. Pennington also alleged that Collins negligently failed to advise him to protect his interests against the misconduct of the other two shareholders.

Reviewing the trial court’s dismissal of Pennington’s malpractice claim, Justice Ada Brown’s opinion in Pennington v. Fields began by pointing out that merely rendering legal services to a corporation does not create an attorney-client relationship between the attorney and the corporation’s officers, directors or shareholders.

The court rejected Pennington’s argument that an attorney-client relationship was established by a pair of retainer agreements executed between attorney Collins and one of the majority shareholders in his capacity as president of Advantage. The retainer agreements described the legal services to be provided as “general corporate matters, including reviewing and revising your existing documents, negotiations with former employees, drafting notices and other corporate legal work as required by the board of directors.”

Nothing in these agreements created an attorney-client relationship between Pennington and Collins, the court ruled. First, the agreements were executed between Collins and the corporation. Pennington did not sign the retainer agreements nor was he mentioned in them, the court pointed out. The court rejected Pennington’s contention that language in the retainer agreements describing the attorney’s duties to include “representation of directors” and performing work “as required by the board of directors” created an attorney-client relationship between Pennington and Collins.

Finding no express agreement creating an attorney-client relationship, the court addressed — and rejected — Pennington’s additional argument that an attorney-client relationship could be implied from Collins’s dealings with board members, including Pennington. Regardless of Pennington’s subjective belief, nothing in the parties’ dealings objectively suggests that there had been a meeting of the minds about Collins’ representation of Pennington, the court said.

“An attorney–client relationship was not created between Collins and Pennington simply because Collins discussed matters with Pennington that were relevant to both Pennington’s and Advantage’s interests,” the court said.

The case is Pennington v. Fields, No. 05-17-00321-CV (Tex. Ct. App, 5th Dist., decided Aug. 21, 2018).

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