A group of shareholders in a commodity trading firm have won the right to renew a legal malpractice claim accusing McGuireWoods of failing to properly represent the minority owners in an action against the majority shareholder for mismanagement and the global law firm that had served as the company’s corporate counsel.
A panel for the First District Appellate Court late last month ruled in favor of the minority shareholders of the commodities trading firm Beeland Management LLC in their dispute with McGuireWoods over the alleged malpractice they contend caused them to collect far less in a settlement agreement than they believed they should have been entitled to.
Justice James Fitzgerald Smith authored the Sept. 30 unpublished order, with justices Nathaniel R. Howse Jr. and William Henry Taylor II, concurring.
The appeals ruling overturns Cook County Circuit Judge Margaret Ann Brennan's dismissal of the Beeland shareholders’ suit against their former counsel.
The case stems from a long-running legal fight between the Beeland shareholders – in this case, identified as James R. Stevens, Arbor Research Holding Inc., Richard L. Chambers, Clyde C. Harrison, Fred D. Handler, Paul Taylor; and The Worth Trust – and Beeland’s founder and majority owner, commodities trader Jim Rogers.
In that case, the shareholders in 2007, through lawyers from McGuireWoods, sued Rogers on their behalf individually and on behalf of the Beeland Management corporation. They alleged Rogers had misappropriated Beeland’s assets and breached his duty to the company by intentionally damaging Beeland for his own personal financial gain in a bad financial deal at the expense of the shareholders.
As part of that action, the court granted the shareholders’ motion to disqualify global law firm Sidley Austin LLP as defense counsel, alleging a conflict of interest as the firm previously represented Beeland in “critical negotiations and corporate governance issues in connection with the transfer of intellectual property from Beeland to Rogers.”
In 2010, the shareholders again turned their attention to Sidley Austin and accused the law firm of conspiring with Rogers and aiding and abetting his breach of fiduciary duty.
The court, however, dismissed that case, backing Sidley’s argument the action had been filed too late. The court also determined the shareholders lacked standing to sue Sidley Austin individually, as the firm had acted as Beeland’s corporate counsel, and as such, owed no duty to the individual shareholders.
The plaintiffs subsequently settled with Rogers in July 2011, but for a sum substantially less than they believed they should have secured if they had been successful in their action against Sidley.
In October 2011, the Beeland shareholders filed suit against McGuireWoods, alleging the law firm should have realized sooner Sidley Austin’s role in the case, and added them to the litigation before time ran out in 2010.
The circuit judge, however, dismissed the shareholders’ suit, agreeing with McGuireWoods' contention it would have been prevented from suing Sidley Austin altogether, as the judge hearing the actions shareholders brought against Rogers determined they lacked standing to sue Sidley.
On appeal, however, the justices said the lower court was wrong to dismiss the malpractice action against McGuireWoods.
While the Beeland shareholders may have lacked standing to sue Sidley Austin individually, the appeals court noted the prior rulings would not have prevented the shareholders from suing in a “derivative” action on behalf of the corporation.
“None of the plaintiffs' derivative claims against Sidley were dismissed with prejudice on the merits,” Smith wrote for the panel. “Rather, they were dismissed with prejudice solely on the basis of timeliness, with which the plaintiffs now fault McGuireWoods.”
The justices also rejected McGuireWoods’ contention that, in representing the shareholders, they also had somehow become Beeland’s corporate counsel.
“Just because McGuireWoods advised the plaintiffs to pursue derivative as well as individual suits in the underlying cause of action, does not automatically transform McGuireWoods' into Beeland's corporate attorney,” Smith explained.
The panel said the shareholders should be permitted to continue with their complaint against McGuireWoods “to determine whether they would have been successful in a derivative suit against Sidley but for McGuireWoods' failure to bring Sidley into the action in a timely manner.”
The case was remanded back to the circuit court for further proceedings.