Friday, August 9, 2019

Why Would You Think I am Your Lawyer?

Why Would You Think I am Your Lawyer?

A decision rendered earlier this year in Rhode Island addressed and rejected the assertion by a member of an LLC that the LLC’s attorney represented his individual interest. Still, while the attorney did ultimately prevail, there is much she could have done in order to if not entirely avoid the dispute at least expedite its resolution. Furtado v. Oberg, C.A. No. 15-312-JJM-LDA, 2019 WL 430893 (D. R.I. Feb. 4, 2019).

J. Furtado and Karin Dreier joined forces in 2008 to open a gym under the name Total Fitness LLC. Dreier invested her capital contribution in the company and as well made a loan to Furtado what would be his contribution, that amount to be paid back pursuant to an amortization schedule. While there was some dispute as to whether Furtado actually received that amortization schedule “[T]here is no dispute that Mr. Furtado knew about Ms. Dreier’s expectation that he would invest $25,000 but did not pay the money back.” 2019 WL 430893,*1.

Oberg, the defendant in this action, was a “long-term friend” of Dreier and had been her attorney for many years. Based on that relationship, Dreier contacted Oberg “to provide legal services in forming [Total Fitness LLC].” Id. Dreier told Furtado that Oberg would be representing the interest of the members in the LLC. Oberg did not prepare or provide a written statement letter, never explained to Furtado that a conflict of interest could arise amongst the various members and never requested any sort of advance waver.

Oberg drafted the operating agreement for the LLC, it providing that each of the members was obligated to execute and deliver an amended and restated operating agreement (the “Amended Agreement”) within four days, and that in the absence of execution delivery of the Amended Agreement that member would cease to be a member of the LLC. Curiously, the opinion does not explain why this was an amended and restated operating agreement, manifesting that there was a prior agreement. It is also at this point in the opinion that we are first introduced to a Mr. Powell, the apparent third member of the LLC. Regardless, Dreier and Powell signed that Amended Agreement. Notwithstanding an extension and various outreach efforts to him, Furtado never signed the Amended Agreement, even after Oberg explained to him the consequences of not doing so.

Even as these issues were arising in connection with execution and delivery of the Amended Agreement, Furtado consulted Oberg “about an unrelated legal complaint” on which Oberg agreed to assist him (the “Farino Matter”). That engagement led to three separate meetings. Again, there was not an engagement letter. Ultimately the matter was settled, and Oberg did not charge Futado for any fees.

In 2012, four years after the deadline for executing and delivering the Amended Agreement, Furtado sought from Dreier copies of the LLCs financial statements. She refused on the basis that he was not a member. Furtado sued Dreier in 2013, seeking a declaration that he was an owner of the LLC; that dispute was resolved in a private settlement. In turn, Furtado brought this malpractice action against Oberg and her firm.

The court began its analysis by noting that the attorney-client relationship arises out of contract. While, in this instance, there was no written engagement letter, Furtado argued for the existence of an applied attorney-client relationship based upon Furtado’s belief that Oberg represented him as an owner of the Total Fitness LLC. With respect to such an implied relationship, the court noted that the standard is more than a “subjective, unspoken belief that the person with whom he is dealing space… has become his lawyer,” and that an objective reasonable standard applies. With respect to these principles, the court cited Sheinkopf v. Stone, 927 F.2d 1259, 1265 (1st Cir. 1991).

After reviewing a variety of factors to be considered, the court determined that “the undisputed facts do not support an implied attorney-client relationship.” 2019 WL 430893, *3. Factually, the court found:

1. Attorney Oberg had represented Ms. Dreier individually for twenty years on many legal matters; Mr. Furtado and Attorney Oberg had no relationship before the formation of the LLC.

2. Mr. Furtado never asked Ms. Oberg to represent him; Attorney Oberg never agreed to represent Mr. Furtado.

3. Attorney Oberg never told Mr. Furtado she represented him.

4. Darrow Everett opened a “sub-file” for the LLC matter under Mr. Dreier’s personal file at the law firm.

5. There are no correspondence or telephone calls solely between Attorney Oberg and Mr. Furtado.

6. Attorney Oberg never gave individualized legal advice to Mr. Furtado.

7. Attorney Oberg never billed Mr. Furtado, and Mr. Furtado never paid Attorney Oberg anything.

8. When a dispute arose about the LLC, Mr. Furtado identified Attorney Oberg as Ms. Dreier’s attorney and he retained another attorney as his attorney, not Attorney Oberg.

Id. (citations omitted).  From there it was found:

In the face of these undisputed facts and in support his position that he had an implied attorney-client relationship with Attorney Oberg, Mr. Furtado argues that he spoke with Attorney Oberg about what type of entity to form, equal ownership of the entity she was forming, personal liability issues as a member of a limited liability company, and management and governance of the LLC as it began to operate; that Defendants represented him in the Farina matter in the days after the LLC was formed, essentially making them “his lawyers”) and that Mr. Furtado and Ms. Dreier approached Ms. Oberg together at least a year later concerning problems they were having with Mr. Powell. None of the factors Mr. Furtado cites, alone or together, are enough to sustain an implied attorney-client relationship.

Id., *4

With respect to the Farino Matter on which Furtado consulted Oberg, the court noted that the consultation with respect to an unrelated matter it was just that, an unrelated matter, that did not give rise to attorney-client relationship with respect to the Total Fitness LLC. With respect to a dispute between Furtado and Dreier against Powell, as Oberg never gave Furtado any “personal or individualized legal advice during [the] dispute,” no attorney-client relationship.

Some additional thoughts. In this instance, Oberg and her firm prevailed, and were awarded summary judgment after what appears to be in excess of three years of litigation. While, in the context of litigation, that might constitute success, that characterization ignores the time, expense and general irritation attendant to receiving and answering a complaint, engaging in the necessary discovery, and crafting a motion for summary judgment.

With some better planning, Oberg should have objectively determined (at least as of that point in time) who was the client.  Picking only a single client, in this instance presumably Dreier, as the sole client with respect to the representation of the LLC would have avoided charges of divided loyalties in connection with her work. The non-client should have been made aware of the terms of the engagement letter at least as far as the identification of who was (and was not) the client. A “I am not your lawyer” letter would have added clarity and countered Furtado’s assertion of a reasonable belief that Oberg represented his interests. If a non-client is to be represented with respect to a unrelated matter, the limited scope of that representation needs to be made clear even as there is a carve out for the existing engagement. Oberg could have specified that she would represent Furtado with respect to the the separate Farino Matter while maintaining her right to represent Dreier, and presumably the LLC vis-a-vis (and in opposition to) Furtado.

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