Whose Attorney?

A lawyer for a business organization needs to be careful in identifying both who they serve and to make express who they do not serve. Confusion as to these points has important implications in a variety of contexts including the related (albeit not co-extensive) realms of the attorney-client privilege and an attorneys obligation of confidentiality and who has standing to assert a malpractice claim against the attorney.

These issues can be especially fraught in the area of small businesses, and the outcome of the analysis can turn on questions of organizational form. Historically, the attorney for a corporation and the consequent obligations are owed to the corporation, that "person that exist in the mind of the law," itself and not to any of the constituents thereof such as directors, officers, employees and shareholders. While it is possible for an attorney to enter into an attorney-client relationship with both the corporation and a constituent thereof, proper disclosure and preferably written documentation of the existence and parameters of the parallel relationships is important.

In contrast, while there has been law to the contrary, an attorney for a partnership has traditionally been deemed to be the attorney for every partner.

Between those two poles, what then is the treatment of the LLC; should the corporate model apply, should the partnership model apply, or should there be developed a model unique to this organizational form. To date, most of the courts that have considered the question have applied the corporate model and deemed counsel for the LLC to not in consequence thereof be as well counsel for any of the constituent members or managers. That apparent agreement has been brought into question by a recent decision from California.

Sprengel v. Zbylut, 194 Cal.Rptr.3d 407 (Ca. Ct. App. 2 Dist. Oct. 13, 2015; modified Oct. 29, 2015), arose out of the falling out between Jean Sprengel and Lanette Mohr, the two members in Purposeful Press, LLC. Sprengel field an action for dissolution of the LLC, and Mohr hired counsel, including Zbylut, to represent the company; in retaining counsel she acted as a manager of the LLC. After that suit was resolved Sprengel brought a malpractice action against Zbylut and the other attorneys:

"violated the duty of loyalty they owed to her under the Rules of Professional conduct by pursuing Mohr's interests in the underlying dissolution and copyright actions. Sprengel alleged she had an implied...