Smith Jadin Johnson attorneys Charles Austinson and Tim Johnson recently won a case at the Court of Appeals disqualifying an attorney from representing a company against one of its clients. The case involved a limited liability company in which the plaintiff and defendant were equal owners. The dispute began when the defendant allegedly took wrongful corporate opportunities of the LLC and personally benefited from those opportunities to the disadvantage of the LLC – ultimately leading to the detriment of SJJ’s client who is a 50% owner of the business.
The defendant’s legal counsel had formed the LLC for the benefit of both the defendant and the plaintiff but was now defending the defendant in the action brought by SJJ’s client (the plaintiff). The plaintiff brought her motion to disqualify the defendant’s counsel on conflict grounds, namely that the defendant’s counsel obtained confidential information from the plaintiff in creating the LLC. Such information was substantially related to the present litigation between plaintiff and defendant, therefore requiring disqualification under the Minnesota Rules of Professional Responsibility. The District Court granted the Plaintiff’s motion to disqualify counsel. The defendant’s counsel appealed.
On January 11, 2021, the Minnesota Court of Appeals agreed with Smith Jadin Johnson that counsel should be disqualified. The court found that the defendant’s counsel did, in fact, obtain confidential information from the plaintiff, and that information (the reasons for the creation of the LLC) were substantially related to the present litigation (whether the LLC was created for various business opportunities or just a single transaction). Under the Minnesota Rules of Professional Conduct by which all lawyers must abide, this represents a conflict and the court correctly disqualified the conflicted counsel.
This was an important decision as it makes clear that attorneys may not “pick and choose” a side of a business dispute when one of their former clients is involved. If you have questions about how to navigate a business dispute, call us today.