Litigation is anticipated by furious contractor for S Corporation

[Strongsilence-CPA]

He, my client owns S Corp 100% and - allegedly by a former contractor - he did not follow through with a promised ownership offer. She, the ex-contractor, also alleges that he embezzled from an unrelated party (on a separate business matter.) She is furious and irate and possibly mentally unstable (words of the DA) and flooded me two weeks ago with 10 emails describing conversations with her lawyer and the local District Attorney.  

They engaged an attorney to mediate their dispute. That attorney has not contacted me.

I highly doubt she initiates me in a legal action or involves me.  She has not made any hints and seems comfortable talking with me and sharing her feelings, ugly as they are.  I assisted them with an ownership tax issues two years ago but he didn't make an ownership offer.  She has not asked me for advice  I don't know if a lawsuit has started.  

I anticipate that this 2023 S Corp return could be a part of a future lawsuit. I probably need to assume that the 2023 and prior tax returns will be evidence supporting her allegations.

What do I need to know to make my work "lawsuit-proof"?  I follow Circular 230 and the professional guidelines.

Should I hire a lawyer so that my communications with my client are protected?  

Should I contact AON for advice?

Anything else?

Hope for the best but prepare for the worst.

[abctax55]

Contact your E&O provider (AON).  IF they feel it's necessary, they will provide you with legal representation.

[qbteachmt]

She's not your client; he is your client? Then stop talking to her about this.

[Strongsilence-CPA]

Thanks for your reply and I appreciate that tip.  I haven't talked with her in about 4 months.  I have since blocker her on my phone.

CNA Insurance had this to say: Nothing is lawsuit proof” but you must have an Engagement Letter, document your work and decisions and document my communications and observations. These are the fundamentals. At this time, I don’t have concerns about my client's integrity, but I will be aware of any indications of lack of integrity.  My CNA insurance policy offers subpoena assistance.

[BobKamman]

"I assisted them with an ownership tax issues two years ago but he didn't make an ownership offer."

"Them"?

Sounds like she was a client at that time.  She may be claiming conflict of interest.  If you're not a party, you're at least a witness.  I'm not sure how your malpractice insurer would become involved, if a non-client is suing you.  But first you should figure out if, when and how she was a client.  

[Strongsilence-CPA]

This is the one area in which I have concern.  There was no engagement letter for this advising about ownership transfer.  We sat for two discussions in which we floated ideas. That could be characterized as brainstorming or "a freebie to attract their business". I didn't bill them for these discussions; well, I didn't list this advising in my bill.

 She may be claiming conflict of interest. Agree. I did have a discussion in which I was clear that benefits to one may be harmful to the other. I said my goal was to state those occassions and to be transparent to each - with each other - about the advising I would be providing.

But first you should figure out if, when and how she was a client. Very useful place to start. thank you.