A group of farmers formed a coop to construct and operate an ethanol facility. Michael Evans (“Evans”) an attorney at Froehling, Weber, Evans & Schell, LLP (“FWES”), prepared the articles of incorporation. He and his wife, Ginger, became shareholders in the coop, and Evans served as the it’s attorney and registered agent. When the coop had trouble paying for construction, Evans and his partner, Nancy Schell (“Schell”) informed the coop board that Green Lion Bio-Fuels, L.L.C. (“Green Lion”) wanted to invest in the project. Evans disclosed that Green Lion was one of FWES’ other clients and that various FWES employees and their family members had equity stakes in it. However, he did not disclose that his wife’s stake in Green Lion was nearly 96%.
The chairman of the coop board signed a conflict waiver which referred to Ginger as a “minority” shareholder, and Green Lion loaned the coop $5 million to complete its project. Id. at 2. Pursuant to the loan, Green Lion would also purchase the coop’s grain handling facility, which the coop would still manage and eventually buy back. Evans drafted the corresponding purchase and buyback agreements. He gave copies of the agreements to Kenneth Eathington (“Eathington”), an attorney at Husch Blackwell, to review. Eathington returned the agreements with his edits. Schell circulated various revised agreements over the next week, until the coop finally executed the sale. Six months later, the coop filed for bankruptcy. Clay Cox (“Cox”), trustee for the coop, sued Evans, Schell, and FWES (collectively “Defendants”) for legal malpractice and breach of fiduciary duty through self-dealing. Defendants moved for summary judgment.
Defendants allege that there was no attorney-client relationship between themselves and the coop such that they could be held liable for malpractice. They argue that the coop’s general manger had retained Eathington as separate counsel for the coop. Cox countered, and the Court agreed, that Eathington was merely additional counsel consulted by Evans. Indeed, the coop’s general manager testified that he sent his questions about the agreements to FWES, not Eathington. As for Cox’s breach of fiduciary duty claim, the Court agreed that there were genuine disputes of material fact. For example, Defendants argued that they had made a full and frank disclosure of their interests in the sale of the holding facility, but the conflict waiver signed in this matter listed Ginger as a “minority” shareholder despite her 96% interest in Green Lion. The court also held that there was a genuine dispute as to the adequacy of the consideration given for the grain handling facility and whether the coop received independent advice on its sale. Evans argued that the coop had engaged Eathington for his independent advice, while the coop maintained that Eathington was only supplemental counsel, not separate. With all of the above issues in dispute, the question of proximate causation was likewise in dispute. Summary judgment was therefore denied.
(This is for informational purposes and is not legal advice.)