## Facts

- Two physicians formed a Michigan professional corporation to operate a radiology practice; each owned 50% of the stock, worked for the corporation, and received the same salary.
- The physicians served as the corporation’s only shareholders and (as alleged) its officers and directors.
- The corporation retained a law firm as corporate counsel.
- After approximately 18 months, one physician consulted the firm on how to end the business relationship and remove the other physician from the corporation while protecting his own interests.
- The ousted physician alleged the firm advised and assisted the other physician in a plan to “freeze out” or exclude him from the corporation while continuing to act as counsel for the corporation.
- The ousted physician alleged the firm did not disclose to him that it was assisting the other physician in actions adverse to his interests as a 50% shareholder and director.
- The complaint asserted claims framed as breach of duty (including fiduciary and professional duties), fraud-like misconduct, and legal malpractice.
- The trial court denied the firm’s motion for summary judgment.
- In discovery, a firm lawyer refused to answer certain deposition questions on attorney-client privilege grounds; the trial court denied a motion to compel but allowed interlocutory review.
- The appellate court granted leave and consolidated interlocutory appeals involving summary judgment and the discovery/privilege dispute.

## Issues

1. Whether corporate counsel for a closely held corporation owes any duty to an individual 50% shareholder, officer, and director when there is no personal attorney-client relationship with that individual.
2. Whether allegations of a fraudulent scheme or comparable misconduct were sufficiently pleaded to obtain relief for fraud-like conduct and to defeat summary judgment at the pleading stage.
3. Whether the attorney-client privilege could be asserted to block deposition answers in light of allegations that counsel participated in fraud-like conduct and breached fiduciary obligations.

## Decision

- The court held there was no traditional attorney-client relationship between the law firm and the shareholder in his individual capacity.
- The court nonetheless held that, given the closely held nature of the corporation and the shareholder’s equal ownership and governance role, the firm owed the shareholder a fiduciary duty and a related duty of care arising from a confidential relationship.
- Reading the complaint in the nonmovant’s favor, the court concluded the pleadings sufficiently alleged a scheme to exclude the shareholder, supporting fraud-like relief and making summary judgment inappropriate at that stage.
- On the discovery dispute, the court did not approve a categorical privilege-based refusal to answer and indicated that allegations of fraud-like conduct and fiduciary breach required further proceedings before privilege could conclusively bar the inquiry.

## Legal Principles

- Representation of a closely held corporation can give rise to fiduciary obligations running to shareholder-officers/directors when the entity is effectively the business vehicle of a small number of equal owners whose rights are directly affected by corporate counsel’s advice.
- A lawyer may be liable for breach of fiduciary duty to such a shareholder even absent a separate, express attorney-client relationship with the shareholder individually.
- Assisting one equal owner in secretly pursuing actions adverse to the other while continuing to function as corporate counsel, without disclosure, can constitute a breach of fiduciary duty and support fraud-like claims sufficient to survive early dispositive motions.
- Allegations that counsel participated in fraud-like conduct may limit the availability or scope of privilege assertions as a basis for refusing discovery, requiring careful judicial scrutiny rather than blanket non-disclosure.

## Conclusion

The court recognized that, in a two-owner closely held professional corporation, corporate counsel may owe fiduciary duties to an individual 50% shareholder-director and may be subject to liability for secretly aiding the other owner in an exclusion plan, even though the lawyer’s formal client is the corporation, and the plaintiff’s fraud-like allegations were sufficient to proceed past summary judgment and to require further consideration of privilege-based discovery objections.


Fassihi v. Sommers, Schwartz, Silver, Schwartz & Tyler, P.C., 107 Mich. App. 509, 309 N.W.2d 645 (Mich. Ct. App. 1981)