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Supreme Court: Lawyers Were Not In Privity With Minority Shareholders
Post on August 1st, 2007

The Ohio Supreme Court recently reversed, in part, an appellate decision that held that attorneys for a majority shareholder were in “privity” with the minority shareholders.

The majority shareholder had sold her stock in the closely held corporation to a grandson. The minority shareholders included two of her children, who did not learn of the sale until after the death of the majority shareholder (their mother). The claims made against the lawyers for the majority shareholder alleged that this action resulted in claimed loss of value to their interest in the mother’s estate, and the corporation.

The court of appeals held that there was privity between the lawyers and the minority shareholders under the Arpadi case, 68 O.S.3d 453, and thus, the lawyers also owed a duty to the minority shareholders for which claims could be brought.

In reversing the appellate decision, the Supreme Court held that a private sale of stock by the majority shareholder was not subject to any fiduciary obligation to the minority shareholders, the majority shareholder was free to sell her stock as she wished. Therefore, the lawyers could not be sued by the minority shareholders for any breach of duty to them. The Court upheld the appellate court, in part, ruling that a claim alleging “malice” or some form of intentional conduct should not have been dismissed by the trial court, and the appellate court’s decision allowing such claims to proceed was appropriate under Ohio law. LeRoy et al. v. Allen, Yurasek & Merklin,et al., 2007-Ohio-3608.

The Supreme Court’s decision is good news for corporate and transactional lawyers in Ohio, who had been subject to a concern that in closely-held corporate disputes, their responsibilities could run to other parties opposed to their clients. The Ohio State Bar Association filed an amicus brief in support of reversal of the privity decision.