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Keywords

settlementplaintiffdefendantcorporation

contractplaintiffdefendantattorneyverdictfiduciarycorporationcommon law

Related Cases

Schaeffer v. Cohen, Rosenthal, Price, Mirkin, Jennings & Berg, P.C., 405 Mass. 506, 541 N.E.2d 997

Facts

The plaintiff, a 50% shareholder of Paragon Rubber Corporation, alleged that the defendant law firm concurrently represented her interests and those of the other 50% shareholder, Emanuel Gross, to her detriment. The law firm accepted fees from Paragon for services rendered to Gross, failed to disclose material facts to the plaintiff, and assisted Gross in efforts to exclude her from the corporation. After a series of legal disputes, the plaintiff settled her claims and transferred her interest in Paragon to Gross.

The complaint alleges that the defendant law firm, Cohen, Rosenthal, Price, Mirkin, Jennings & Berg, P.C., and two members of that firm were negligent in providing the plaintiff with legal services, violated a contract to represent her legal interest, violated fiduciary duties they owed her as a fifty per cent shareholder of Paragon Rubber Corporation (Paragon), a closely held corporation, and violated G.L. c. 93A (1986 ed.).

Issue

Did the plaintiff have standing to maintain a derivative action against the law firm after she ceased to be a shareholder of Paragon Rubber Corporation?

Rule

A shareholder must maintain their status as a shareholder to have standing to bring a derivative action on behalf of the corporation.

The judge concluded that, with respect to corporation (Paragon) matters, there was no attorney-client relationship between the plaintiff and the defendants.

Analysis

The court analyzed the relationship between the plaintiff and the law firm, concluding that the law firm owed duties to Paragon, not to the individual shareholders. Since the plaintiff was no longer a shareholder after the settlement, she lacked standing to pursue the derivative claims. The court also noted that the claims personal to the plaintiff were not presented to the jury, which further weakened her position.

The judge found that the derivative action, the petition for dissolution, and an action commenced by the plaintiff in the District Court to obtain an accounting of rents from the real estate were settled in January, 1984.

Conclusion

The court affirmed the lower court's judgment, ruling that the plaintiff lacked standing to maintain her claims against the defendants.

The judge properly ordered judgment for the defendants on the plaintiff's common law claims (Counts 1–4).

Who won?

The defendants prevailed because the court determined that the plaintiff lost her standing to maintain a derivative action when she ceased to be a shareholder.

The judge concluded that the jury's special verdicts established only that the defendants had violated duties they owed to Paragon, not to the plaintiff, and that, as a consequence, 'the cause of action resulting from that [violation] only could be asserted as a derivative action on behalf of Paragon.'

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