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Fassihi v. Sommers, Schwartz, Silver, Schwartz & Tyler, PC

Michigan Court of Appeals
107 Mich. App. 509, 309 N.W.2d 645 (1981)
ELI5:

Rule of Law:

An attorney for a closely held corporation does not have a direct attorney-client relationship with an individual shareholder, but may owe that shareholder a fiduciary duty if the shareholder reposes faith, confidence, and trust in the attorney.


Facts:

  • In 1973, Dr. Fassihi and Dr. Lopez formed a professional medical corporation, Livonia Physicians X-Ray, P.C., with each owning 50% of the stock and serving as the sole directors.
  • The defendant law firm was hired to represent the corporation and drafted its formation documents.
  • Unknown to Fassihi, Lopez had a pre-existing personal contract with St. Mary’s Hospital that gave Lopez sole responsibility for staffing the radiology department, a fact the defendant law firm was aware of but never disclosed to Fassihi.
  • The defendant law firm also represented Lopez individually, which it did not disclose to Fassihi.
  • In 1975, Lopez decided he no longer wanted to be associated with Fassihi and consulted with the defendant law firm on how to oust him from the corporation.
  • On June 6, 1975, an agent of the defendant law firm delivered a letter to Fassihi terminating his employment and interest in the corporation.
  • Following this termination, St. Mary's Hospital informed Fassihi he was no longer eligible to practice there due to his ouster from the corporation.

Procedural Posture:

  • Plaintiff Fassihi filed a complaint against the defendant law firm in the trial court.
  • Defendant filed a motion for summary judgment, arguing no attorney-client relationship existed with Fassihi.
  • The trial court denied the defendant's motion for summary judgment.
  • During a deposition, an attorney for the defendant refused to answer questions, claiming attorney-client privilege.
  • Plaintiff moved for an order to compel discovery, which the trial court denied.
  • The trial court permitted both parties to file an interlocutory appeal of their respective denied motions.
  • The Michigan Court of Appeals (intermediate appellate court) granted leave to hear the consolidated appeals.

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Issue:

Does an attorney for a closely held corporation owe a fiduciary duty to an individual 50% shareholder, even in the absence of a direct attorney-client relationship?


Opinions:

Majority - Per Curiam

Yes, an attorney for a closely held corporation may owe a fiduciary duty to an individual shareholder even without a formal attorney-client relationship. The court reasoned that while the corporation is technically the client, a separate fiduciary relationship can arise when a shareholder places trust and confidence in the attorney's judgment. Here, Fassihi's allegations that the defendant firm failed to disclose its dual representation of both the corporation and Lopez, knew of Lopez's side-deal with the hospital, and actively assisted Lopez in a plan to oust Fassihi, are sufficient to state a claim for breach of a fiduciary duty. The court also held that the attorney-client privilege could not be used to shield communications about Fassihi's ouster from Fassihi himself, as he was a director and member of the corporation's 'control group' and the communications were in furtherance of a fraud.



Analysis:

This case is significant for establishing that in the context of a closely held corporation, an attorney's duties may extend beyond the corporate entity to the individual shareholders. It blurs the traditional line that the corporation is the sole client, acknowledging the practical reality that shareholders in small companies often perceive the corporate counsel as their personal lawyer. This precedent creates a cause of action for shareholders who are victims of 'squeeze-out' schemes facilitated by corporate counsel, forcing attorneys in such situations to be vigilant about conflicts of interest and duties of loyalty to all constituents, not just the majority or managing shareholder.

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