How to Choose a Lawyer for a Dispute With a Co-Owner

What Should You Weigh When Choosing a Lawyer for a Co-Owner Dispute?

You should weigh five factors together: experience with owner disputes and the court, negotiation as well as litigation, who does the work, how the fee is quoted, and how the lawyer explains your options. Each one predicts what the dispute will cost and how well you will understand the choices in front of you.

The last factor has a legal floor. Minnesota Rule of Professional Conduct 1.4(b) provides: “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation” (Minn. R. Prof. Conduct 1.4(b)). In a co-owner dispute, the decisions are large: whether to stay or sell, at what price, and whether to sue someone you built the company with.

A sixth question comes before the five factors: whose lawyer is this? A lawyer who already works for the company starts with a problem on that question, because the company is that lawyer’s client.

Who Does the Company’s Lawyer Represent in an Owner Dispute?

The company’s lawyer represents the company. Minnesota Rule of Professional Conduct 1.13(a) provides that “A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents” (Minn. R. Prof. Conduct 1.13(a)). Comment 2 to Rule 1.13 adds: “This does not mean, however, that constituents of an organizational client are the clients of the lawyer.” When the company’s interests are adverse to an owner’s, the lawyer “shall explain the identity of the client” (Rule 1.13(e)).

The rule lets a company’s lawyer represent an owner too, but only “subject to the provisions of Rule 1.7” (Rule 1.13(f)). Rule 1.7(b)(3) then requires that the representation not involve “the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal” (Minn. R. Prof. Conduct 1.7). The comment states: “Paragraph (b)(3) prohibits representation of opposing parties in the same litigation, regardless of the clients’ consent.” A “tribunal” under Rule 1.0(n) includes “an arbitrator in a binding arbitration proceeding” (Minn. R. Prof. Conduct 1.0). Outside that case, the lawyer’s duties to the company can still create a material-limitation conflict under Rule 1.7(a)(2), quoted in full in the conflicts section of this page. Rule 1.7(b) permits the representation only if, among other conditions, “each affected client gives informed consent, confirmed in writing.” If the company’s consent is required, Rule 1.13(f) provides that “the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders.” Before any lawsuit, the comment is still cautious: “Generally, if the relationship between the parties has already assumed antagonism, the possibility that the clients’ interests can be adequately served by common representation is not very good.”

Talking to the company’s lawyer about the dispute carries its own risk. When interests are adverse, comment 9 to Rule 1.13 says the individual should understand that “the lawyer for the organization cannot provide legal representation for that constituent individual, and that discussions between the lawyer for the organization and the individual may not be privileged.” My page on attorney-client privilege in a corporate setting explains who holds the privilege.

A 1990 Minnesota Court of Appeals decision shows the cost of assuming otherwise. In that malpractice case, a corporation’s long-time lawyer drafted a buyout between brothers who owned the company, and the selling brother later claimed the lawyer had represented him. The court explained that “Minnesota law recognizes two methods of establishing an attorney-client relationship: a contract theory and a tort theory,” and it affirmed summary judgment that no attorney-client relationship existed. On the contract theory, it noted that the brother “did not request respondent to represent him, respondent never promised to represent him, and respondent sent no bills to appellant for services rendered on his behalf.” On the tort theory, it held his reliance on the lawyer’s advice unreasonable as a matter of law for four reasons. He knew his interests differed from those of his brothers, who controlled the corporation. He knew the lawyer had represented the corporation for years and owed allegiance to it. The lawyer had advised him “at least once, and possibly twice, to retain his own counsel.” Finally, “at the time of the 1986 sale, he had received the responsibility board’s decision,” an earlier determination that the lawyer represented only the corporation (TJD Dissolution Corp. v. Savoie Supply Co., 460 N.W.2d 59 (Minn. Ct. App. 1990)). The court noted that the board’s action “has no direct legal effect on this action,” but that the brother’s knowledge of it “bears on the question of the reasonableness of his reliance.”

The company may need its own separate lawyer as well. When an owner sues on the company’s behalf, comment 12 to Rule 1.13 says such a case “usually is, in fact, a legal controversy over management of the organization.” Comment 13 adds that “if the claim involves serious charges of wrongdoing by those in control of the organization,” then “Rule 1.7 governs who should represent the directors and the organization.”

How Much Does Experience With Owner Disputes and the Court Matter?

Experience matters because an owner dispute has its own statutes, its own venue rules, and its own case-management track. Under Minnesota’s corporate dissolution and buyout section, “Proceedings under this section shall be brought in a court within the county in which the registered office of the corporation is located” (Minn. Stat. § 302A.751, subd. 5). For an LLC, Minn. Stat. § 322C.0701, subd. 3, provides: “A proceeding brought under subdivision 1, clause (5), must be brought in a court within the county in which the registered office of the limited liability company is located.” Clause (5) covers a member’s application to dissolve the company for illegal or fraudulent conduct by its managers, governors, or the members in control of it, or for oppressive conduct by them that “was, is, or will be directly harmful to the applicant.”

If your articles, bylaws, shareholder agreement, or operating agreement contain an arbitration clause, an arbitrator may decide some or all of the dispute instead of a court. Minn. Stat. § 572B.06(a) provides that such an agreement “is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of contract,” and under § 572B.06(b) the court “shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.” For an LLC, Minn. Stat. § 322C.0110, subd. 3, provides that an operating agreement may not “vary the power of a court to decree dissolution in the circumstances specified in section 322C.0701, subdivision 1, clauses (4) and (5).” I suggest telling a candidate about any arbitration clause and asking about their arbitration experience, because the clause can change where the case is heard.

In district court, these cases can also land in a special track. Under Minn. Gen. R. Prac. 146.02(c), “An action is provisionally a complex case if it involves one or more of the following types of claims,” and the list includes “Ownership or control of business claims.” Rule 146.03 provides that “A single judge shall be assigned to all designated complex cases.” Rule 146.01(b) lists among the program’s principles “Mandatory disclosure of relevant information, rigorously enforced by the court.” For you, that can mean one judge from start to finish and early disclosure of the company’s records. I suggest asking a candidate whether they have handled a case in that program, because it changes the pace and the early workload.

Experience with the claims matters as much as experience with the court. The grounds differ by entity. A corporation’s shareholder may rely on, among other grounds, a showing that “the directors or the persons having the authority otherwise vested in the board are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock,” or that “the directors or those in control of the corporation have acted in a manner unfairly prejudicial toward one or more shareholders” (§ 302A.751, subd. 1). An LLC member applying to dissolve may rely on, among other grounds, a showing that “the managers, governors, or those members in control of the company” have acted or are acting “in a manner that is oppressive and was, is, or will be directly harmful to the applicant” (§ 322C.0701, subd. 1). Partners in a general partnership use a different statute, Minn. Stat. § 323A.0801. If you are the owner accused, my page on defending a shareholder oppression claim covers that side.

How Should a Lawyer Explain Your Options, Including a Buyout?

A lawyer should lay out every realistic path, legal and practical, with what each costs and risks, and then leave the decision to you. Under Minn. R. Prof. Conduct 1.2(a), “A lawyer shall abide by a client’s decision whether to settle a matter.” Under Minn. R. Prof. Conduct 2.1, a lawyer “may refer not only to the law but to other considerations such as moral, economic, social, and political factors, that may be relevant to the client’s situation.”

For a co-owner dispute, the paths can include:

1. A direct conversation between owners. Owners who still talk can sometimes agree on the business terms faster than lawyers trading letters, and then have the agreement drafted.

2. A negotiated buyout. Your company documents set the starting point. For a corporation, if the dispute reaches court under § 302A.751, subd. 3a applies “In determining whether to order equitable relief, dissolution, or a buy-out,” and provides: “For purposes of this section, any written agreements, including employment agreements and buy-sell agreements, between or among shareholders or between or among one or more shareholders and the corporation are presumed to reflect the parties’ reasonable expectations concerning matters dealt with in the agreements.” My page on how to buy out a business partner walks through price and terms.

3. Mediation. A neutral helps the owners negotiate, covered in the next section.

4. A court case seeking a buyout or other relief. For a corporation, once a shareholder establishes one or more of the statutory grounds, a court may grant “any equitable relief it deems just and reasonable in the circumstances” (§ 302A.751, subd. 1). It may also order a sale of a plaintiff’s or defendant’s shares “if the court determines in its discretion that an order would be fair and equitable to all parties under all of the circumstances of the case” (§ 302A.751, subd. 2). The price is fair value as of the start of the case or another equitable date. But “if the shares in question are then subject to sale and purchase pursuant to the bylaws of the corporation, a shareholder control agreement, the terms of the shares, or otherwise, the court shall order the sale for the price and on the terms set forth in them, unless the court determines that the price or terms are unreasonable under all the circumstances of the case.” Otherwise, if the parties cannot agree on fair value after the order, the court determines it. Once the order is entered and payment is secured, the selling shareholders “shall no longer have any rights or status as shareholders, officers, or directors, except the right to receive the fair value of their shares plus such other amounts as might be awarded.”

   For an LLC, a member can bring a proceeding under § 322C.0701, subd. 1, clause (5). That clause reaches illegal or fraudulent conduct by the company’s managers, governors, or the members in control of it, and oppressive conduct by them that “was, is, or will be directly harmful to the applicant.” In that proceeding, a court “may order a remedy other than dissolution, which may include the sale for fair value of all membership interests a member owns in a limited liability company to the limited liability company or one or more of the other members” (§ 322C.0701, subd. 2). My page on shareholder oppression explains those claims.

5. A practical fix for an urgent problem. If a co-owner has cut off your access to money, a fast practical step may matter more than a lawsuit. My page on whether a partner can take away your access to the bank account covers that situation.

If a candidate describes only the lawsuit, I suggest asking about the other paths, because the answer shows whether the lawyer is weighing your business goals or only the case.

Why Does Negotiation Experience Matter as Much as Trial Experience?

Negotiation experience matters because Minnesota’s state courts build a settlement process into civil cases, and a buyout is ultimately an agreement on price and terms. Minn. Gen. R. Prac. 114.01(a) provides that “All civil and family cases are subject to this rule,” subject to a list of exceptions. Under Rule 114.04(b), “The parties, after service of the complaint, petition, or motion, shall promptly confer regarding selection and timing of the ADR process and selection of a Neutral.”

The rule also puts a duty on the lawyer you hire: “Upon being retained to advise on any civil dispute potentially subject to Rule 114, attorneys shall provide clients with information about available ADR processes” (Rule 114.03(b)). Mediation is one of those processes: “A process in which a Neutral facilitates communication and negotiation to promote voluntary decision making by the parties to the dispute” (Rule 114.02(c)). My page on what happens at a mediation walks through the day.

A mediator does not represent either owner. When a lawyer serves as a mediator, Rule 2.4(b) provides that the lawyer “shall inform unrepresented parties that the lawyer is not representing them” (Minn. R. Prof. Conduct 2.4). I suggest asking a candidate how they have resolved owner disputes short of trial, because a negotiated exit needs a buyout agreement, releases, and a payment schedule drafted with the same care as a pleading. A departing owner who is also an employee may be asked to release claims under the Minnesota Human Rights Act. Under Minn. Stat. § 363A.31, subd. 2, such a release “may be rescinded within 15 calendar days of its execution, except that a waiver or release given in settlement of a claim filed with the department or with another administrative agency or judicial body is valid and final upon execution.” The same subdivision provides: “A waiving or releasing party shall be informed in writing of the right to rescind the waiver or release.” Subdivision 2 adds: “To be effective, the rescission must be in writing and delivered to the waived or released party by hand, electronically with the receiving party’s consent, or by mail within the 15-day period.” A mailed rescission must also be “postmarked within the 15-day period,” “properly addressed to the waived or released party,” and “sent by certified mail return receipt requested.” A release of federal age-discrimination claims has its own requirements in 29 U.S.C. § 626(f).

Who Will Actually Do the Work on Your File?

I suggest asking who will draft, negotiate, argue, and answer your calls, because the person you meet may not be the person doing the work. Minnesota’s communication rule requires your lawyer to “keep the client reasonably informed about the status of the matter” (Minn. R. Prof. Conduct 1.4(a)(3)).

Staffing affects both cost and judgment. At a larger firm, a partner may supervise while associates draft and paralegals manage documents, and the bill reflects each person’s time. A solo lawyer may do every step personally. Either model can work if you get a clear answer, so you know whose judgment shapes the strategy and who will take the call when your co-owner makes an offer.

An owner dispute also tends to involve the company’s daily operations: payroll, bank access, customers, and employees. I suggest asking how quickly the lawyer returns calls and how the lawyer will report progress, because an operational problem may need an answer the same week.

How Should a Lawyer Quote the Fee in an Owner Dispute?

A lawyer should tell you, before or soon after starting, what the work covers and how you will be charged. Minnesota’s fee rule requires that “The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation,” with an exception for a regularly represented client billed on the same basis (Minn. R. Prof. Conduct 1.5(b)). The comment explains why the writing helps: “A written statement concerning the terms of the engagement reduces the possibility of misunderstanding.”

Three fee structures appear in owner disputes:

1. Hourly. You pay for the time spent, so you carry the risk that the dispute runs longer than expected. I suggest asking for an estimate by phase (negotiation, mediation, motions, trial).
2. Flat fee. Rule 1.5(b)(1) provides that “A lawyer may charge a flat fee for specified legal services, which constitutes complete payment for those services and may be paid in whole or in part in advance of the lawyer providing the services.” The rule adds: “If agreed to in advance in a written fee agreement signed by the client, a flat fee shall be considered to be the lawyer’s property upon payment of the fee, subject to refund as described in Rule 1.5(b)(3).” Rule 1.5(b)(3) provides that “Fee agreements may not describe any fee as nonrefundable or earned upon receipt,” and that if the relationship “is terminated before the fee is fully earned, the lawyer shall refund to the client the unearned portion of the fee.” The definition of the task matters, because the flat fee covers only what it names.
3. Contingent fee. A fee tied to the recovery can fit an owner seeking money from the other side. “A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined” (Rule 1.5(c)).

Two features of Minnesota’s corporation statute bear on the fee conversation. First, for a corporation, § 302A.751, subd. 4, provides: “If the court finds that a party to a proceeding brought under this section has acted arbitrarily, vexatiously, or otherwise not in good faith, it may in its discretion award reasonable expenses, including attorneys’ fees and disbursements, to any of the other parties.” Section 322C.0701, the LLC dissolution section, contains no comparable fee provision. Second, a court-ordered buyout under § 302A.751 can require a valuation. Where no agreement already sets the price, or the court finds an agreed price or terms “unreasonable under all the circumstances of the case” (§ 302A.751, subd. 2), the price is fair value. If the parties cannot agree on fair value, the court determines fair value under Minn. Stat. § 302A.473, subd. 7, which provides: “The court may appoint appraisers, with powers and authorities the court deems proper, to receive evidence on and recommend the amount of the fair value of the shares.” I suggest asking whether the quote includes valuation work, because the value of your interest can be the number the whole dispute turns on.

What Conflicts Can Keep a Lawyer From Taking Your Side?

A lawyer has a conflict if representing you would be directly adverse to another client, or if duties to someone else would materially limit the work. Under Rule 1.7(a), a conflict exists if “(1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person, or by a personal interest of the lawyer.” A conflict can reach the whole firm: “While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rule 1.7 or 1.9, unless the prohibition is based on a personal interest of the prohibited lawyer and does not present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm” (Minn. R. Prof. Conduct 1.10(a)).

Three conflicts can arise in co-owner disputes:

1. The lawyer who represented all the owners. The comment to Minn. R. Prof. Conduct 1.9 says a lawyer “who has represented multiple clients in a matter” cannot represent one of them against the others “in the same or a substantially related matter after a dispute arose among the clients in that matter, unless all affected clients give informed consent.”
2. The company’s regular lawyer. That lawyer’s client is the company. If you and the company or your co-owner would assert claims against each other in the same lawsuit or binding arbitration while that lawyer represents them, Rule 1.7(b)(3) bars representing you, even with consent. Otherwise, the lawyer’s duties to the company can create a material-limitation conflict under Rule 1.7(a)(2), which Rule 1.7(b) permits only with each affected client’s informed consent, confirmed in writing, among other conditions. Rule 1.13(f) also limits who may give the company’s consent, as the section on whom the company’s lawyer represents explains.
3. A lawyer your co-owner already consulted. Under Minn. R. Prof. Conduct 1.18(c), a lawyer who received information from a prospective client “that could be significantly harmful to that person in the matter” may not represent someone with materially adverse interests in the same or a substantially related matter, and the bar reaches the lawyer’s firm. Rule 1.18(d) allows the representation if “both the affected client and the prospective client have given informed consent, confirmed in writing,” or if “the lawyer who received the information took reasonable measures to avoid exposure to more disqualifying information than was reasonably necessary to determine whether to represent the prospective client,” the disqualified lawyer “is timely screened from any participation in the matter and is apportioned no part of the fee therefrom,” and “written notice is promptly given to the prospective client.”

I suggest giving every candidate the names of all owners, the company, and any related companies at the first contact. A conflict found after you have spent hours with a lawyer costs you that time.

When Is a Mediator, CPA, or Valuation Professional the Better Fit?

Part of a co-owner dispute can be number work or facilitated negotiation, and another professional may do that part better or for less. The comment to Rule 2.1 recognizes that “business matters can involve problems within the competence of the accounting profession or of financial specialists. Where consultation with a professional in another field is itself something a competent lawyer would recommend, the lawyer should make such a recommendation.”

Each one fits a different part of the work:

1. A certified public accountant (CPA). A CPA can reconstruct the books, trace distributions and owner compensation, and explain the tax effect of a buyout structure. If the fight is about whether money was taken, the CPA’s work can become the evidence.
2. A business valuation professional. A valuator can value your interest before you negotiate. In a court-ordered buyout under § 302A.751, the price is fair value if no agreement already sets the price, or if the court finds an agreed price or terms unreasonable. If the parties cannot agree on fair value, the court decides fair value “computed by any method or combination of methods that the court, in its discretion, sees fit to use” (§ 302A.473, subd. 7). A credible valuation therefore helps in negotiation and in court.
3. A mediator. A neutral can run the negotiation between owners who still want a deal. Under Rule 2.4(a), a lawyer acting as a mediator “assists two or more persons who are not clients of the lawyer.”

A lawyer is still the right fit for the legal claims, for advising you on the rights your documents give you, and for drafting the buyout agreement and releases. That drafting includes the written notice of the right to rescind that § 363A.31 requires when an owner who is also an employee releases Human Rights Act claims. Owners who agree on most terms can hire a lawyer for that narrower work alone, which costs less than a full litigation engagement.

What Questions Should You Ask Before Hiring?

The useful questions test the five factors and the conflict question: experience, negotiation, staffing, fees, options, and conflicts. A lawyer’s answers in the first conversation also show how the lawyer will communicate for the rest of the dispute. I suggest these questions:

1. Have you handled disputes between owners of closely held companies, and in which counties?
2. Have you handled a case in the district courts’ Complex Case Program?
3. How have your owner disputes ended: negotiated buyout, mediation, court order, or trial?
4. Do you, your firm, or anyone at your firm represent the company, my co-owner, or a related business?
5. Who will draft, negotiate, and argue, and who will answer my calls?
6. How will you charge, what does the quote cover, and does it include valuation or accounting work?
7. What are my options besides a lawsuit, and what does each one cost and risk?
8. Would a CPA, valuation professional, or mediator do part of this work better?

For the first contact, a short description and the names of the owners and the company are enough. What you tell a lawyer in a consultation about hiring is protected, within the limits the rule and its comments set. Under Rule 1.18(a), “A person who consults with a lawyer about the possibility of forming a client-lawyer relationship with respect to a matter is a prospective client.” Rule 1.18(b) then provides: “Even when no client-lawyer relationship ensues, a lawyer who has consulted with a prospective client shall not use or reveal information obtained in the consultation, except as Rule 1.9 would permit with respect to information of a former client.” The comments, which guide how the rule is read, add that “a consultation does not occur if a person provides information to a lawyer in response to advertising that merely describes the lawyer’s education, experience, areas of practice, and contact information,” and that “A lawyer may condition a consultation with a prospective client on the person’s informed consent that no information disclosed during the consultation will prohibit the lawyer from representing a different client in the matter.” I still suggest holding documents until the conflict check clears, because documents sent to a firm that represents your co-owner have reached a firm you cannot hire.

If your company is also being sued by an outside party, my guide to choosing a lawyer after your business is sued covers that separate decision.

What Can a First Engagement Cover?

A first engagement can be the whole dispute or a defined first step, with the scope written down. Minnesota permits a narrower engagement: “A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent” (Minn. R. Prof. Conduct 1.2(c)). The fee rule then requires that the scope be communicated, “preferably in writing” (Rule 1.5(b)).

A defined first step lets you test the relationship before committing to a lawsuit. First steps can include:

1. A document read and options analysis. The lawyer reads the articles, bylaws or operating agreement, any shareholder control or buy-sell agreement, and the key financial records, and tells you your rights, your exposure, and the realistic paths.
2. A buyout proposal or demand. A letter to your co-owner setting out the problem and a proposed resolution, including a price method.
3. A mediation. Preparing for and attending a mediation with a neutral both owners accept.
4. The first court filing or response. A complaint seeking relief under § 302A.751 or § 322C.0701, or the response if your co-owner has sued first.

I suggest asking for an engagement letter that names what the first step includes and what would be a separate engagement, so you can compare the cost of each step with what is at stake.

Choosing a Lawyer for an Owner Dispute

The right lawyer for a co-owner dispute is your own, not the company’s, and has no conflict with your co-owner or the company. That lawyer has experience with owner disputes and the court that would hear yours, and negotiates as well as litigates. The lawyer also tells you who will do the work and how it will be billed, and explains every path, including a buyout, mediation, and where a CPA or valuation professional fits. My business partner dispute page describes how I represent Minnesota owners in these disputes. If you have a dispute with a co-owner, email [email protected] with a brief description, and I can start an intake and conflict check before you send any confidential documents.