NJ: Shareholders or Corporation: Who's the Client?
Shulman v. Wolff & Sampson, P.C. 951 A.2d 1051, 401 N.J.Super. 467 (2008) (pdf)
Student Contributor: Joshua Aronson
Facts: Plaintiffs were minority shareholders and served on the board of directors of Van Mar, Inc. The Plaintiffs were ousted from their board positions by the other directors (defendants). Plaintiffs contend that defendant law firm assisted the other defendants in ousting the minority shareholders and therefore committed legal malpractice and breached their fiduciary duties to the corporation and to plaintiffs. The defendant law firm argued that they could not be legally responsible to the plaintiffs individually for legal malpractice because they never represented them. Plaintiffs argue that the attorneys did not represent the best interest of the corporation because if they had knowledge that the majority shareholders were acting improperly, they had a duty to bring that to the attention of all shareholders. Plaintiffs filed three separate complaints two of which actions were settled. The third action for legal malpractice is the heart of the ensuing litigation. The defendant claims that because the first two actions were settled, the plaintiff is precluded from bringing any further claims against the defendant.
Issues: Can minority shareholders of a corporation bring individual claims of legal malpractice against corporate counsel?
Ruling:
Legal malpractice claims brought against corporate counsel are limited to derivative shareholder causes of action where the shareholders are seeking to benefit the corporation, not for individual claims.
I think its a good rule to limit who can sue corporate counsel to prevent excessive amounts of litigation.
While I agree with Ms. Goldberg, I also disagree in that I do not believe a person should be limited in what they can sue for. The civil system has been very lenient in allowing anyone to sue for practically anything, and I believe the same should apply here. So long as one is damaged, I believe they should be allowed to bring a suit to be made whole again.
I agree with the holding in this case because I think that limiting the cause of action to the derivative share may decrease litigation.
While I partially agree with Ms. Gaedcke, in that limiting a cause of action to a derivative share would decrease litigation, decreasing litigation in a case where a party is injured and cannot seek relief is not necessarily going to be a good thing.
I agree with the limiting the cause of action to a derivative share. The influx of cases in courts will increase unless the courts are able to somehow get a hold on and limit what people can sue for, without barring suit completely. I think in using a balancing test here, the benefit of limiting the cause of action far outweighs the harm of limiting it.