FTI v. Worden (continued)

Well now, this is just strange. As we mentioned the last time we looked in on this case, despite having taken hundreds of thousands in fees, the law firm has decided to stiff the client. It really is sad that the loyalty a true professional would be expected to show is subverted to mere pride.
Apparently not having any real defense to the lawsuit, the law firm has filed a rather bizarre motion. Before addressing that motion, some additional background is necessary. FTI had a rather substantial loan with Bank One, a local Rockford, Illinois bank. Worden had represented them when those loans were negotiated. In 2003, when the company was in financial trouble, due in part to not having recovered for the vandalism to the corporation, Jim Schanstra sought to borrow additional funds from the bank. The bank, however, had been sold and noticed that there was no personal guarantee for the outstanding loan. The bank wanted Schanstra to sign a cross-collateralization note before it would lend any money. A cross-collateralization note is a guarantee by the individual that he will pay the loans of another, in this case, the corporation. Schanstra absolutely did not want to guarantee the corporate note. Just before he was ready to finalize the loan, Worden told him that the law firm could no longer represent him with regard to the loan as the firm also represented the bank. Somewhat dumbstruck, Schanstra went to a new lawyer to whom the firm referred him and signed a note, which had a cross-collateralization clause. Thereafter, Schanstra was forced into personal bankruptcy. In his bankruptcy, he listed his ownership of the corporation, but did not list the assets of the debt as there is no way to do so on a bankruptcy form. The bank objected to his bankruptcy and Schanstra ultimately settled with the bank, paying a limited amount of money but also giving the bank his personal causes of action. The law firm is now claiming that since Schanstra gave his personal causes of action to the bank, that therefore he was also giving the corporations rights to the bank and that therefore the case should be dismissed.
That motion is stupid for a number of reasons:
1. Corporations are legal entities separate from their stockholders. If this were not true, any time a stockholder of a corporation assigned his interest in a personal cause of action that would also include every corporation in which he owned stock. Ignoring the possible anomalies that would arise when different shareholders assigned interests to separate people, the abolition of the difference between individuals and corporations would necessarily invalidate the protections that the corporate structure provides.
2 For a corporation to give anything away, it is necessary that the shareholders or president give it away in the corporate name, something which did not occur here.
3. Even if Schanstra’s ceding of his personal actions to the bank were to be seen as giving the corporate action to the bank, it is only the right to proceeds that is given not the ability to sue. Here then, the suit could not be dismissed, but the proceeds would go to the bank
We shall see if the judge can understand these basic rules.