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Does the Attorney for a Close Corporation Owe the Minority Shareholders a Fiduciary Duty?

Fiduciary Duty. As a recent case shows, the answer is: it depends.

Assume that you are the attorney for a closely-held corporation (a privately held corporation with a small number of active shareholders), and you have interacted with and provided corporate legal advice to the shareholders over the years. Even though you did not represent them personally, the shareholders placed their trust and confidence in you. A dispute then arises between one of the shareholders (who has a minority position) and the corporation. Can you represent the corporation in this dispute, or do you have a fiduciary duty to the minority shareholder that presents a conflict of interest, and precludes you from the representation?

An article by Massachusetts Bar Counsel written in 2003, Closely Held Conflicts, reviews the case law on this issue (which has developed mostly in the context of motions to disqualify counsel), and sends a clear warning that attorneys who have represented a closely held corporation most likely do owe a fiduciary duty to the shareholders.

However, a recent decision by Superior Court Judge Francis R. Fecteau draws an important distinction to keep in mind when this issue arises. In that case, Bensetler v. Data Plus, Judge Fecteau found that attorneys who represented a closely held corporation did not have a fiduciary duty to a minority shareholder with whom they had never interacted. Thus, at least according to this case, there is no per se rule on this issue, and depending on the level of interaction, there may be circumstances under which an attorney who has represented a close corporation may represent the corporation in a suit adverse to a minority shareholder.

UPDATE: Here is a link to Superior Court Judge’s Christine Roach’s Memorandum of Findings and Ruling, dated October 8, 2008, ruling for the defendants following a bench trial.

A Discussion with Pam Woodall, Asian Economics Editor of The Economist

This interview, which can be accessed here, provides some fascinating observations on emerging markets and their impact on the world economy. Ms. Woodall notes that emerging markets now represent one-half of world output and world energy consumption. She states:

The integration of China, India and other emerging economies are providing the biggest economic boost in world history, bigger than the industrial revolution. The first decade of 21st century will see the fastest growth ever in average world income.

An extensive series of articles from the September 16, 2006 issue of The Economist, titled A Survey of the World Economy and focusing on emerging markets, can be accessed from this page (lengthy PDF file).

So Much for Early Retirement

Courts. Judge Jack B. Weinstein is a legend in the federal judicial system. A district court judge from 1967 to 1993, he has been on “senior status” (but with a full case load) for the last 13 years. Yesterday, this 85 year old judge issued one of the longest decisions ever published: the 540 page decision certifying a class action in Schwab v. Philip Morris USA, a case alleging that smokers were defrauded into believing that “light” cigarettes were less dangerous than regular cigarettes.

A link to this exhaustive and carefully reasoned decision, which may be the most significant by Judge Weinstein in his forty years on the bench, is here. Proponents of “early retirement” should take a look.

Class Action Crazies Attack Wal-Mart

What were they thinking? David Fish at Collins Law, passed on this case: Acree et al v. Wal-Mart Stores, Inc. (Complaint in pdf format)

This class action lawsuit alleges that Wal-Mart claims that music CDs it sells do not contain explicit language when in fact some of them do. Quoting from the suit:

Wal-Mart violated its practice and policy by allowing CDs to be sold that contained explicit content but that did not contain an ‘explicit content’ or ‘parental advisory’ warning label. This worked to dupe the very consumers who have come to trust and rely on Wal-Mart as a ‘family friendly’ store.

The case was filed in state court in Chicago. Too bad the plaintiffs didn’t file it in PRC, Massachusetts. That would have led to some amusing courtroom scenes.

I’ll let you draw your own conclusions on the merits of this one, but I’m confident that the attorneys who filed this suit have the best interests of the injured class in mind and do not, I repeat do not, have attorney’s fees in mind.

Do Software Patents Discourage Innovation?

Patents. Over the last 20 years the conventional wisdom has been that patents are inimical to software innovation in the U.S. Many prominent software developers and industry luminaries have argued this position.

Here is a link to a paper by Professor Robert Merges of the University of California Law School at Berkeley arguing the contrary view: that software patents have had a negligible impact, if any, on innovation in the industry. Here is the abstract:

In the late 1980s and early 1990s, people in the software industry often said that the coming of patents would spell doom, particularly for small companies. The entry of new firms – the seabed of growth in the industry – would dry up, and only large, bureaucratic and decidedly non-innovative firms would remain. This paper concludes that these predictions were wrong. New firm entry remains robust, despite the presence of patents (and, in some cases, perhaps because of them). Successful incumbent firms have adjusted to the advent of patents by learning to put a reasonable amount of effort into the acquisition of patents and the building of patent portfolios. Patent data on incumbent firms shows that several well-accepted measures of “patent effort” correlate closely with indicators of market success such as revenue and employee growth. Whatever the effect of patents on the software industry, this paper concludes, they have not killed it.

Here is a link to the paper.