Shareholder Has Standing to Sue Corporation's Counsel for Malpractice

On September 20, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in Reines v. Raoul Felder & Partners, P.C., 2018 NY Slip Op. 32332(U), holding that a shareholder had standing to sue the corporation's counsel for malpractice, explaining:

It is well settled that a stockholder has no individual cause of action against a person or entity that has injured the corporation. It therefore follows that an individual shareholder lacks standing to sue for legal malpractice in his own name for a wrong committed against a corporation, consideration is warranted in this case because the substance of plaintiff's claims is that defendants had a duty to represent him in his individual capacity, in addition to on behalf of the corporation, and that he suffered damages independent from those suffered by the corporation as a result of defendants' negligence.

Defendants also ignore the fact they themselves filed pleadings on behalf on plaintiff in the underlying arbitration which state that they in fact represent plaintiff individually, and derivatively on behalf of the corporation. Regardless of whether the claims corresponding to plaintiff's damages were brought individually or derivatively, the pleadings suggest that defendants had a contractual agreement with plaintiff to represent him on his capacity as an individual, and therefore a duty distinct from that to the corporation. Accordingly, the complaint may not be dismissed for lack of standing.

(Internal quotations and citations omitted).

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