Opdyke v. Kent Liquor Mart, Inc.

Supreme Court of Delaware · Corporations

CorporationsClosely held corporationsAttorney-client fiduciary dutyclosely held corporationjoint ventureattorney-client relationshipfiduciary dutyconstructive trust

Facts

Opdyke, Smith, and Richter formed Kent Liquor Mart, Inc., each receiving 100 shares, and attorney Brown handled the incorporation and licensing. After disputes arose, Opdyke claimed he had purchased Richter's original 100 shares, while Richter disputed that claim; Brown then hosted and moderated a meeting among the three men to try to settle the stock dispute. When settlement efforts failed, Brown bought the Richter-Smith group's two-thirds stock interest without Opdyke's prior knowledge or consent, even though Brown knew Opdyke claimed ownership of Richter's stock and that control of the business was at stake. Opdyke then sued, asserting among other things that Brown had violated fiduciary duties owed to him.

Issue

Whether Brown, despite acting as attorney for the corporation, also stood in an attorney-client fiduciary relationship with the three individual participants in this closely held venture such that he could not purchase the disputed controlling stock interest adverse to Opdyke without Opdyke's explicit informed consent. A secondary issue was whether the court should disturb the Vice Chancellor's finding that Opdyke did not prove an unconditional October purchase of Richter's original 100 shares.

Rule

In determining whether an attorney-client relationship exists, the court looks to the actual relationship in fact, not merely to the separate legal existence of a corporation. Where a corporation is simply the form used to carry on a joint venture and the lawyer acts as counselor to the participants, the lawyer owes fiduciary duties to those individuals and may not acquire an interest in the subject matter of their dispute that is adverse to one of them without that client's explicit consent given after full understanding of the position and legal rights. Even if the representation has ceased, the lawyer may not use knowledge acquired directly through the counseling relationship in a way adverse to the former client.

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

In Columbus, three friends—Nina Patel, Owen Briggs, and Carla Mendez—formed Riverbend Event Supply, Inc. to operate a single party-rental business. Attorney Daniel Reeve handled the incorporation, licensing, and later convened all three in his office to help resolve a fight over which founder should control the company; two days after the meeting failed, he agreed to buy Owen's and Carla's shares, knowing Nina claimed a right to obtain enough shares to control the business.

If Nina sues Daniel for breach of fiduciary duty, which argument is strongest under the governing rule?

Explanation. The controlling rule looks to the actual relationship in fact, not merely the corporation's separate legal existence. Where a closely held corporation is simply the vehicle for a joint venture and the lawyer acts as counselor to the participants—including by convening them, insisting on neutrality, and trying to settle their dispute—the lawyer owes fiduciary duties to those individuals. He therefore may not acquire an interest adverse to one of them in the subject matter of their dispute without explicit informed consent. (Derived from Opdyke v. Kent Liquor Mart, Inc. (n.d.).)