Jesse By Reinecke v. Danforth

Supreme Court of Wisconsin · Corporations

Corporationsconflict of interestorganization as clientattorney disqualificationSCR 20:1.7SCR 20:1.13SCR 20:1.6attorney-client relationship

Facts

DeWitt attorney Douglas Flygt was retained by a group of twenty-three physicians, including Drs. Danforth and Ullrich, to assist in organizing a corporation to purchase and operate an MRI machine, and he incorporated MRI Associates of Greater Milwaukee (MRIGM) and continued as its corporate counsel. MRIGM, not a party to this malpractice action, had Dr. Danforth as president and both doctors as shareholders. Later, another DeWitt attorney, Eric Farnsworth, represented the plaintiffs in a medical malpractice suit against Drs. Danforth and Ullrich and related entities, alleging negligence involving a CAT scanner and related financial incentives. The doctors moved to disqualify DeWitt, claiming the firm's prior corporate work meant it also represented them personally and had received their confidential information.

Issue

Whether DeWitt had a conflict of interest requiring disqualification from representing the plaintiffs in the malpractice action because its prior pre-incorporation and corporate work for MRIGM allegedly made Drs. Danforth and Ullrich its clients, or because DeWitt's representation of plaintiffs was directly adverse to its ongoing representation of MRIGM.

Rule

When a person retains a lawyer for the purpose of organizing an entity, the lawyer's involvement with that person is directly related to that incorporation, and the entity is eventually incorporated, the entity rule applies retroactively so that the lawyer's pre-incorporation involvement is deemed representation of the entity, not the individual. In representing an organization, the client is the organization rather than its shareholders or other constituents unless there is separate representation of those individuals. A conflict under SCR 20:1.7 requires that representation of one client be directly adverse to another client; indirect or speculative adverse effects are insufficient.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Madison, six veterinarians hired attorney Nora Pike to create a corporation that would buy a specialized imaging device. Pike drafted formation documents, advised on the corporation's structure, and the corporation was later formed; two years afterward, another lawyer in Pike's firm sued one of the veterinarians on behalf of an injured patient in an unrelated negligence action.

The veterinarian moves to disqualify the firm, arguing that Pike personally represented him during the pre-formation period because she communicated directly with him about the new venture. What is the strongest answer?

Explanation. The majority adopted a retroactive entity-rule guideline: when a person retains a lawyer to organize an entity, the lawyer's involvement is directly related to that incorporation, and the entity is eventually incorporated, the lawyer's pre-incorporation involvement is deemed representation of the entity rather than the individual constituent. Direct communications with future shareholders do not alone create automatic dual representation. (Derived from Jesse By Reinecke v. Danforth (n.d.).)