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Avoiding Implied Attorney-Client Relationships with Individual Members of Small Companies

Posted on: September 15th, 2020

By: Jennifer Weatherup

Where an attorney represents a partnership or entity, there is the potential for him or her to create an implied attorney-client relationship with its individual members, imposing a duty of care that the attorney may not be prepared to satisfy. This risk is particularly strong with small entities and partnerships, and attorneys who act on behalf of these entities must avoid inadvertently creating an implied relationship with any individual officers or members.

In California, the factors for determining the existence of an implied attorney-client relationship were set forth in Responsible Citizens v. Superior Court (1993) 16 Cal. App. 4th 1717. The Court in Responsible Citizens noted that, as a general rule, the attorney for a corporation represents the corporate entity, and represents its stockholders and its officers exclusively in their capacity as corporate representatives. However, it held that an attorney for a partnership could, through his or her conduct, enter into an “implied” attorney-client relationship to represent the interests of individual partners. Various factors could indicate that an implied relationship existed, including the type and size of the partnership, the nature and scope of the attorney’s engagement, the parties’ conduct, the existence of agreements between the attorney and the individual partner, and the attorney’s access to information regarding the individual partner’s interests. These factors must be considered within the totality of the circumstances.

Responsible Citizens was most recently revisited in September 2019, in the matter of Sprengel v. Zbylut (2019) 40 Cal. App. 5th 1028. The court in Sprengel concluded that, although it was relevant that the attorney represented a limited liability company with two 50 percent shareholders, this arrangement did not, in itself, create implied attorney-client relationships between the attorney and the shareholders. Because there was no evidence to demonstrate that “the parties conducted themselves in a way that would reasonably cause a shareholder to believe the attorney would protect the shareholder’s individual interests,” the plaintiff in Sprengel was unable to establish an attorney-client relationship with the defendant attorney.

To avoid owing a duty to their corporate client’s officers or shareholders, attorneys who represent partnerships and closely-held corporations should set reasonable boundaries between their representation and individual shareholders or members to avoid creating any impression that the attorney would protect their individual interests.

If you have questions or would like more information, please contact Jennifer Weatherup at [email protected]

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