BLS Judge Dismisses all Claims against Company’s Outside Counsel in Freeze Out Case

scales of justice

In Baker v. Wilmer Cutler Pickering Hale and Dorr, LLP, Judge Salinger dismissed all claims against outside counsel advising a company and its majority shareholder on a planned freeze out of a minority shareholder. The Court held that corporate attorneys generally owe no fiduciary duty to the individual shareholders of closely held corporations and were not liable for aiding and abetting a majority shareholder’s fiduciary duty even though the law firm had advised the majority shareholder that his actions were lawful. Judge Salinger also dismissed the plaintiff’s M.G.L. c. 93A claim against the attorneys.

In Baker, minority members of ATT, an LLC, sued the majority members and outside counsel following a merger that resulted in a substantial dilution of the minority owners’ interests. The merger was the result of corporate strategizing between the majority shareholder, the company’s CEO, and outside counsel, over a way to effect a larger ownership interest in ATT for the majority shareholder in exchange for his further, necessary capital contributions that the minority shareholder refused to match.

Judge Salinger dismissed the breach of fiduciary duty claim against the law firm, holding that the attorneys owed no fiduciary duties to the individual shareholders of ATT. The Court noted that it is an unsettled question in Massachusetts whether an attorney representing a closely held corporation may ever owe a fiduciary duty to individual shareholders but held that if any such duty can be found, it must be narrowly construed so that it does not conflict with the attorney’s duty to the corporate client. In any event, ATT’s interests conflicted sharply with the minority shareholder’s interests. In dismissing the plaintiff’s aiding and abetting claim, the court reasoned: “A lawyer does not become liable for aiding and abetting the commission of a tort by a client merely because the lawyer advised the client that it could lawfully engage in some course of conduct, the client did what the lawyer advised was permissible, and it turned out that the client’s actions were tortious.”

Finally, the Court dismissed the c. 93A claims based on a finding that ATT’s attorneys had not inserted themselves into any business dealings or competition with the plaintiff. Assisting the majority shareholder, by providing him advice on how to freeze out the minority shareholder, was not conduct actionable under c. 93A. The Court also held that the “intra-corporate dispute” doctrine protected the attorneys’ conduct. The Court contrasted cases where an attorney makes knowing misrepresentations to a client’s adversary in order to help a client undertake unfair business practices, or that their work for the company gained the law firm an unfair business advantage.

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