## Facts

- Founders Funding Group, Inc. (FFG) was a closely held Oregon corporation with three directors/shareholders, each owning one-third: William R. Granewich II, Ben Harding, and Jeannie Alexander-Hergert.
- Granewich alleged that Harding and Alexander-Hergert, as controlling shareholders/directors, carried out a minority “squeeze-out.”
- The alleged squeeze-out acts included amending FFG’s bylaws to exclude Granewich from the corporation and issuing new shares to themselves to dilute Granewich’s ownership.
- Granewich sued Harding, Alexander-Hergert, FFG, and FFG’s outside counsel (Michael J. Farrell and his law firm), seeking damages.
- By the time of Supreme Court review, claims against the corporation and the nonlawyer defendants had been dismissed; only claims concerning the lawyers’ role remained.
- Granewich alleged the attorney defendants knew of and participated in the squeeze-out by assisting with the bylaw amendments and stock issuance, and that they were liable for the resulting harm.

## Issues

1. Whether a complaint states a claim against corporate counsel based on allegations that the lawyers knowingly participated in controlling shareholders’ breach of fiduciary duty to a minority shareholder/director in a closely held corporation.
2. Whether dismissal under ORCP 21 A(8) was proper where the complaint alleged counsel’s active assistance in transactions used to effect a squeeze-out.

## Decision

- The Oregon Supreme Court reversed in part the Court of Appeals and reversed in part the circuit court’s judgment of dismissal.
- The court held that allegations that the corporation’s attorneys knew of and participated in a squeeze-out scheme that resulted in controlling shareholders’ breach of fiduciary duties stated a valid claim against the attorneys.
- The case was remanded for further proceedings on the claims against the attorney defendants.

## Legal Principles

- Controlling shareholders and directors in a closely held corporation owe fiduciary duties to minority shareholders and may not use corporate mechanisms (including bylaw amendments and stock issuances) to oppress or freeze out a minority owner for improper purposes.
- On a motion to dismiss for failure to state a claim, well-pleaded factual allegations are assumed true and viewed in the light most favorable to the plaintiff.
- A third party, including corporate counsel, may be liable when the third party knowingly participates in, and provides substantial assistance to, another’s breach of fiduciary duty.
- Allegations of knowing participation can support attorney liability even if the attorney’s direct fiduciary obligations to an individual shareholder/director are limited or disputed; the actionable theory is participation in the fiduciary breach committed by the controlling shareholders.

## Conclusion

The court held that a minority shareholder/director stated a claim against corporate counsel by alleging the lawyers knowingly assisted controlling shareholders in executing a squeeze-out that breached fiduciary duties, and it remanded for further proceedings rather than allowing dismissal at the pleading stage.


Granewich v. Harding, 329 Or. 47, 985 P.2d 788 (Or. 1999)