Legal Malpractice

From the Frying Pan into the Fire in Legal Malpractice

By (Andrew Lavoott Bluestone)

A tip of the blogging hat to Shareholder Oppression Blog which reports this Texas case in which business is looking for investors and plaintiff comes along.  His investment is somewhat complicated, and the company's attorney suggests some changes. Here is the opinion.  While the attorney was not held in this case, we expect that the company will be his next opponent.

From the blog:

"Triumph Healthcare, LLP was a startup venture seeking investors, and was formed as a limited liability partnership. Triumph reached an agreement with Span to invest $500,000, of which $200,000 would be capital and $300,000 would be a loan. Triumph was represented by attorney Ivan Wood. Triumph consulted with Wood prior to reducing the agreement with Span to writing. Woods suggested that Triumph issue span "Series A preferred partnership units" instead of incurring $300,000 in debt. The idea was proposed to Span, which agreed on the understanding that the $300,000 would be paid back, the preferred units would be converted to common units, and Span would end up with a 10% ownership interest in Triumph. Triumph and Span signed a "Preliminary Agreement" which stated that Triumph would incorporate the terms of the preliminary agreement into the partnership documents. Ultimately, when Wood drew up the final documents, however, he changed the terms to provide that Span's ownership would be diminished as the preferred units were paid off. The change was not disclosed to Span, which signed the final documents, apparently without reading or understanding the changes."

"The Court does not address the issue of fiduciary duties between Span and Triumph, but without question Triumph did owe its partner fiduciary duties under Texas law, and these duties would be violated by changing the terms of the partnership interests without disclosure and knowingly taking advantage of the partner's ignorance of the change. The question was whether the partnership's attorney could be held liable individually as the person who effected that change."
 

Full post as published by New York Attorney Malpractice Blog on December 10, 2008 (boomark / email).