New Legal Developments

Attorney Disqualification — Shareholder Derivative Suits

Ontiveros v. Constable (2016) 245 Cal.App.4th 686.
Minority shareholder sued the majority shareholders of a corporation in a shareholder derivative suit. Attorney, who had previously represented the majority shareholders, appeared in the suit purporting to represent both the majority shareholders and the corporation, on the basis of a conflict waiver signed by the majority shareholders.
Held: Attorney disqualified from representing the company, but not the majority shareholders. The interests of the majority shareholders and the corporation were so intertwined that that it was impossible for there to have been confidential corporate information that would not have otherwise flowed to the shareholders.
But the Attorney was disqualified from representing the corporation because the derivative suit is brought in the name of the corporation, thus there is a technical adversity between the majority shareholders and the corporation. It did not matter that the majority shareholders signed a waiver on behalf of the corporation after purporting to buy out the minority shareholder.