## Facts

- Byron Dahl recruited Roger Pederson and Garry Shepard to invest in a chemical-products business to be formed as Chem-Age Industries, Inc.
- Dahl retained attorney Alan F. Glover, who had represented Dahl for many years, to form the corporation.
- Glover prepared and filed Chem-Age’s articles of incorporation, naming Pederson and Shepard as incorporators and directors, and served as the corporation’s registered agent.
- Dahl misappropriated investor funds and used corporate money and credit for personal purposes, including purchasing office furniture later given to Glover as a “gift.”
- After the corporation was formed and the investors learned a lawyer was involved, they contributed additional capital.
- Glover assisted in a transaction in which Chem-Age’s assets were sold through a Dahl-controlled entity; the investors alleged they were not repaid as promised.
- Chem-Age, Pederson, and Shepard sued Dahl, Glover, and others for fraud, conversion, legal malpractice/negligence, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and exemplary damages.
- The trial court granted summary judgment for Glover on all claims, reasoning primarily that Glover owed no duty to the corporation or investor-directors because they lacked contractual privity with him.

## Issues

1. Whether evidence created a triable question that Glover undertook representation of Chem-Age and thus owed duties of care to the corporation and its director-investors.
2. Whether summary judgment was proper on legal malpractice/negligence based on alleged failures in advice and protection of corporate interests.
3. Whether disputes of fact existed on conversion based on Glover’s receipt or retention of property purchased with corporate funds or credit.
4. Whether plaintiffs produced sufficient evidence of fraud by misrepresentation or concealment attributable to Glover.
5. Whether triable issues existed on breach of fiduciary duty and on aiding and abetting Dahl’s fiduciary breaches (knowledge and substantial assistance).
6. Whether exemplary damages could be considered given the surviving tort claims and the evidence of willful or wanton conduct.

## Decision

- The South Dakota Supreme Court affirmed in part, reversed in part, and remanded.
- The court affirmed summary judgment for Glover on the fraud claims for lack of specific evidence satisfying fraud elements.
- The court reversed summary judgment on malpractice/negligence because a jury could find Glover represented Chem-Age and breached duties owed to the corporation.
- The court reversed summary judgment on conversion because evidence could support a finding that Glover wrongfully exercised dominion over corporate property (including furniture acquired with corporate credit).
- The court reversed summary judgment on breach of fiduciary duty and aiding and abetting because fact questions existed regarding Glover’s knowledge of Dahl’s misconduct and whether Glover substantially assisted it.
- The court remanded for trial on the surviving claims and on whether exemplary damages were warranted.

## Legal Principles

- Attorney duties may arise from the lawyer’s conduct and the functional attorney-client relationship, not solely from a formal retainer or contractual privity.
- A lawyer who forms and acts for a corporation may owe professional duties to the corporation, even if initially engaged by a promoter or controlling individual.
- Summary judgment is improper where evidence could permit a factfinder to conclude the lawyer undertook corporate representation and failed to exercise reasonable care in protecting corporate interests.
- Conversion may be shown where a defendant exercises control over another’s property inconsistent with the owner’s rights, including acceptance of benefits traceable to misappropriated corporate assets.
- Fraud requires specific evidence of actionable misrepresentation or concealment, reliance, and causation; generalized assertions of a lawyer’s knowledge of a client’s bad history are insufficient without proof of fraud elements.
- Aiding and abetting a fiduciary breach turns on proof of the aider’s knowledge of the breach and substantial assistance; questions of knowledge and assistance are commonly for the jury when supported by evidence.
- Exemplary damages may proceed to the jury when supported by evidence of willful or wanton conduct tied to surviving tort claims.

## Conclusion

The court held that privity did not categorically bar claims against a lawyer involved in forming and acting for a closely held corporation, and that fact disputes required trial on corporate-duty, malpractice, conversion, and aiding-and-abetting theories, while fraud failed for lack of specific proof.


Chem-Age Indus., Inc. v. Glover, 652 N.W.2d 756 (S.D. 2002)