Opdyke v. Kent Liquor Mart

Supreme Court of Delaware · Corporations

CorporationsClosely held corporationsAttorney-client fiduciary dutyConstructive trustclosely held corporationjoint ventureattorney-client relationshipfiduciary duty

Facts

Opdyke, Smith, and Richter formed Kent Liquor Mart, Inc., each initially receiving 100 shares, and they had attorney Herman C. Brown incorporate the business and help obtain the liquor license. After disputes arose over ownership and withdrawal from the failing business, Opdyke claimed he had bought Richter's shares, while Brown convened and moderated a meeting among the three men in an effort to settle their differences. When the proposed settlement failed, Brown learned through that role that Richter and Smith were selling their stock and then bought their combined interest without Opdyke's prior knowledge or consent. Opdyke then challenged Brown's purchase on the ground that Brown owed him a fiduciary duty as his attorney.

Issue

Whether Brown, although formally counsel for the corporation, was in fact attorney for the three individual participants in the venture such that he breached fiduciary duties by purchasing stock that was the subject matter of their dispute and thereby acquiring an interest adverse to Opdyke. Also, whether Brown could use information obtained while counseling the parties after the relationship had ended.

Rule

In determining whether an attorney-client fiduciary relationship exists, the court looks to the actual relationship, not merely the separate legal existence of the corporation. Where a lawyer is in fact acting as attorney for the individual participants in a joint venture and counseling them regarding a dispute among themselves, the lawyer may not acquire, without the affected client's explicit consent given with full understanding of the position and legal rights, an interest in the subject matter of that dispute adverse to that client; this restriction also applies where the lawyer uses knowledge gained directly from the counseling role even if the attorney-client relationship is assumed to have ceased.

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

In Wilmington, three friends—Nina Patel, Eric Dawson, and Luis Moreno—asked attorney Caleb Marsh to organize Harbor Street Market, Inc., a closely held grocery business. Over the next year, Caleb handled the incorporation, attended owner meetings, and later convened the three in his office to work through a dispute over which of them owned a controlling block of shares.

If Caleb later argues that he represented only the corporation and therefore owed no fiduciary duty to Nina personally, which is the strongest response?

Explanation. The majority held that attorney-client status turns on what the relationship actually was, not merely on the corporation’s separate legal existence. Where the lawyer in fact acted as counselor to the individual participants in a closely held venture and undertook to help resolve their dispute, fiduciary duties may run to them individually. (Derived from Opdyke v. Kent Liquor Mart (n.d.).)