New Destiny Treatment Ctr., Inc. v. Wheeler (2011), 129 Ohio St.3d 39
The Ohio Supreme Court recently determined that a corporation could not bring a legal malpractice action against an attorney hired to represent a dissident board member of the corporation in an underlying dispute over corporate control. New Destiny Treatment Ctr., Inc. v. Wheeler (2011), 129 Ohio St.3d 39. In so holding, the Supreme Court has clarified the contours of the attorney/client relationship in situations involving corporate control.
In New Destiny, the founder, president and chairman of the board of directors of a non-profit corporation was placed on a leave of absence when allegations surfaced that he had misappropriated the charity’s assets for his own personal gain. The founder who was placed on leave hired an attorney to represent him in his efforts to regain control of the corporate entity. Towards that end, the attorney scheduled a meeting of the board of directors who purportedly elected a majority of directors favorable to her client. After her client reasserted control of the organization, the lawyer held herself out as the attorney for the corporation in various court proceedings.
Ultimately, the actions of the newly elected directors in reinstating the founder were held to be invalid because the group lacked the necessary quorum. The actions of the board were voided and the lawyer’s client was ousted from the charity.
Subsequent to the ouster of the founder, the charity filed a legal malpractice action against his lawyer arguing that an attorney/client relationship existed between the charity and the lawyer because the lawyer held herself out as an attorney for the corporation and the attorney’s legal fees were paid by the corporate treasury. The trial court granted the attorney summary judgment finding that no attorney/client relationship existed because all of the rightful board members of the corporation testified they did not consider the attorney as their counsel and never relied upon any of her legal advice. The court of appeals reversed and the Supreme Court considered the issue regarding whether an attorney/client relationship existed to support a legal malpractice claim.
The Supreme Court concluded that a claimant may not maintain a cause of action for legal malpractice against an attorney in the absence of the attorney/client relationship. The Court held that, in order for an attorney/client relationship to be formed with a corporation, the party hiring counsel on behalf of the corporation must necessarily have authority to do so and must reasonably believe that an attorney/client relationship had been established. In this case, the Court observed that no one with authority to employ the attorney on behalf of the charity retained the lawyer and no corporate resolution ratified her retention. The Court noted that the dissident board members lacked the authority to hire the attorney to represent the charity. In support of its holding, the Court relied upon the deposition testimony of the legitimate directors who unanimously agreed that they never considered the attorney counsel for the corporation.
This case was handled by members of Reminger Co., L.P.A. Professional Liability and Appellate Advocacy Groups. The Court’s decision serves to clarify the contours of the attorney/client relationship in the context of disputes over corporate control. The Supreme Court has now made clear the fact that an attorney retained to represent a dissident faction in a dispute over corporate control does not represent the corporation unless an authorized representative of the corporation retains the attorney’s services. If you would like further information on the Supreme Court’s recent decision or would like to discuss the decision’s impact on a particular case, please contact any member of Reminger’s Legal Professional Liability Practice Group.
