Redefining Obligations in Close CorporationFiduciary Representation: Attorney Liabilityfor Aiding and Abetting the Breach ofFiduciary Duty in Squeeze-Outs

I. Introduction Over the past thirty years, judicial decisions and legislative revisions of corporate statutes have reflected the belief that traditional norms of corporate governance are not entirely applicable to closely-held corporations.1 Although the norms of centralized control and majority rule have served the needs of the publicly-held corporation, they often create oppressive situations for minority shareholders in the close corporation.2 For example, majority shareholder control, coupled with the illiquidity of an investment in a close corporation, may fuel a "squeeze-out"3 designed to flush the minority investor from the entity.4 In the mid-1970s, courts began to modify the body of corporate law to resolve the awkwardness that arises when close corporations are subject to legal principles developed for larger entities.5 One modem legal response has been the enhancement of a majority shareholder's fiduciary obligations to a minority shareholder in a closely-held corporation.6 This enhanced fiduciary duty has created the opportunity for minority shareholders in the close corporation to bring an individual cause of action for breach of fiduciary duty against majority shareholders.7 In the recent decision of Granewich v. Harding,8 the Oregon Supreme Court significantly expanded the protections afforded to minority shareholders in close corporations by concluding that an oppressed minority shareholder could state a claim of aiding and abetting the breach of fiduciary duty against attorneys who assisted controlling shareholders in effecting a corporate squeeze-out.9 The common law has long recognized that one who assists a fiduciary's breach of duty may be liable for the harm caused.10 Imposing liability upon those who provide assistance to a fiduciary's breach of duty is consistent with one of tort law's principal goals - deterring wrongful actions that result in harm.11 Over the past twenty years, courts in a variety of jurisdictions increasingly have recognized "aiding and abetting the breach of fiduciary duty" as a legitimate cause of action against individuals, including attorneys, who assist in the breach of fiduciary duties.12 Consequently, Granewich's mere recognition of an attorney's liability for assisting a breach of fiduciary duty is not earth-shattering. Rather, Granewich's import rests in its extension of the cause of action to the corporate squeeze-out,13 in its conflict with the Model Rules of Professional Conduct,14 and in its ramifications for redefining an attorney's obligations in close corporation squeeze-outs.15 In light of the Granewich opinion, this Note analyzes the extension of attorney liability for aiding and abetting the breach of fiduciary duty in the corporate squeeze-out and discusses its implications for redefining the attorney's obligations in the representation of majority shareholders in a close corporation. Part II provides a brief introduction to primary liability and third-- party liability for breach of fiduciary duty.16 Additionally, Part II outlines the traditional elements of common-law formulations of aiding and abetting the breach of fiduciary duty as a cause of action in light of cases decided prior to Granewich.17 Part III details the intricacies of the Granewich decision, focusing on the factual background and the analysis of both the Oregon Court of Appeals and the Oregon Supreme Court.18 Part IV analyzes Granewich in light of the unique nature of the close corporation fiduciary,19 prior applications of liability for aiding and abetting the breach of fiduciary duty,20 the necessity for attorney involvement in a squeeze-out,21 and conflicts that the case creates with the Model Rules of Professional Conduct.22 Part V.A presents California case law addressing attorney assistance in the breach of fiduciary duties owed to minority shareholders.23 Part V.B reconciles differences in outcome between Granewich and California case law by examining California's experiences with atorney liability to non-clients,24 by contrasting the principle of non-accoutability against the substantive law of agency,25 and by evaluating policy arguments regarding the extension of liability in the squeeze-out context. …