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Attorney-Client Relationship, Business, and Divorce

On Behalf of | Jul 26, 2017 | Legal Ethics

In our previous blog post titled “Is My Company’s Lawyer Also My Lawyer?” we talked about an attorney-client relationship in the context of an LLC business divorce case.  In that case, Yun, one of the two business partners, refused to produce certain documents in her possession during discovery, claiming attorney-client privilege.  For a party to assert this privilege, however, there must be an attorney-client relationship, which arises when someone contacts an attorney for the purpose of obtaining legal advice.  The court found that Yun’s use of her personal email address to communicate with the attorney about the legal work to be done for the company, and the attorney’s belief that he represented Yun as an individual, were not sufficient to establish an attorney-client relationship.

Recently, an appeals court in Texas addressed the same issue in the context of a closely-held corporation.  In that case, two business partners, Krueger and Torres, co-founded a renewable energy company called Cru Energy, Inc.  Over time, the parties’ relationship deteriorated as the two wrestled over control of the company, leading to a messy legal battle beginning in 2011.  The underlying case involved a multitude of issues, including breach of fiduciary duties, fraud, conversion, and tortious interference claims, as well as a temporary restraining order against Krueger, and a Chapter 7 bankruptcy petition filed by Krueger.  The appeal was an offshoot of what the court called the long-running “business divorce” litigation, whose immediate focus was legal malpractice claims asserted by Torres on behalf of the company, against two attorneys and their law firm who represented Krueger (the “lawyers”).

For Torres to be able to assert legal malpractice claims against the lawyers on behalf of the company, however, there must be an attorney-client relationship between the lawyers and the company.  According to the court, this relationship arises when an attorney and client mutually agree that the attorney will render professional services for the client.  And while such an agreement need not necessarily be express and may sometimes be implied from the objective manifestations of the parties’ conduct, the court said, in either case, “There must be evidence both parties intended to create an attorney-client relationship.”

That said, the lawyers presented evidence that they had once represented Krueger pursuant to an explicit engagement letter but had never represented the company—and that, in fact, much of their representation of Krueger had been adverse to the company.  Meanwhile, the only proof that Torres offered in support of his claim, that there was an implied attorney-client relationship between the lawyers and the company, consisted of emails and other communications between the lawyers and Krueger.  Torres argued that those communications objectively manifested the relationship’s evolution from representation of Krueger alone to representation of the company Krueger had come to control.  The court, however, disagreed, finding that the evidence was merely consistent with the lawyers’ representation of Krueger and not sufficient to show an attorney-client relationship.

The first question to ask, before we even get to the question discussed above, might be whether the lawyer representing my business partner is also my company’s lawyer.  While it seems highly unlikely that Torres was confused about whom the lawyers represented in this case, one lesson to be learned here is to clearly define and document the relationship to avoid any ambiguities.

What has been your experience with business partners and divorce? What would you do differently? If you have any questions about the content of this blog or any business law issues not discussed here, please contact us.

If you have any suggestions for blog topics, please send them to [email protected].

Each case is unique.  Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique.  Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Odan Jaeger.


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