In Ohio, the general principle is that an attorney is immune from liability to third persons arising from their performance as an attorney working in good faith and with the knowledge of their client, unless such third person is in privity with the client or the attorney acts maliciously. Recently, in Omega Riggers & Erectors, Inc. v. Koverman, 2d Dist. Montgomery No. 26590, 2016-Ohio-296, the Second District Court of Appeals ruled that minority shareholders in a close corporation could not maintain a malpractice claim against the corporation’s counsel because “1) there was no privity between them and [the corporate counsel]; 2) there were no genuine issues of fact to prove that [counsel] acted with malice; and, 3) [the minority shareholders] could not establish that [their] damages were not in common with the other shareholders.”
In Omega the Second District addressed claims by two minority shareholders that submitted contingent offers to buy the assets of the corporation; however, the corporation accepted a lower, non-contingent, third-party offer. The shareholders alleged breach of fiduciary duty, legal malpractice, and negligence against corporate counsel; however, the trial court ruled that the various claims constituted an action for malpractice and disposed of them on summary judgment.
On appeal, the Second District upheld the trial court’s decision, holding that “the individual plaintiffs had no attorney-client relationship with the defendants, and no substitute (privity, malice, or uncommon injury) for an attorney-client relationship” existed. Importantly, the Court held that to substitute malice for an attorney-client relationship with corporate counsel, a minority shareholder must prove the corporate counsel acted in a manner that “demonstrates extra-legal activity,” i.e. activity that is not permitted by law. Finally, the Court noted that since the minority shareholders were represented during the sale by an independent attorney, they were precluded from pursuing a malpractice action against the corporation’s attorney because the corporate counsel represented their adversary in the proceedings.
The Omega decision is important because it narrows the standing of a minority shareholder to maintain an action in malpractice against corporate counsel. After Omega, minority shareholders must show a direct attorney-client relationship with the corporate counsel, the corporate counsel acted in a manner that “demonstrates extra-legal activity,” or that their injury is uncommon with other shareholders. Consequently, the bar to malpractice actions against corporate counsel by minority shareholders without a direct attorney-client relationship has been raised to one where corporate counsel must have taken extra-legal actions.
If you would like a copy of the Omega decision or have any questions regarding legal professional liability, please contact a member of the Legal Professional Liability Practice Group.
This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.
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