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Volume XI, Number 167

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Are the Costs and Disruptions of Business Divorce Litigation Worth It?

Nobody looks forward to litigation, as the costs of both time and money can be extreme. And business divorce litigation can be terribly disruptive to the company the owners are fighting over. Consequently, majority owners often do not take threats of litigation seriously. “He’ll never do it.” “He won’t spend the money to sue.” “He won’t want the employees to know we’re at each other’s throats.” I have heard these statements and more come out of the mouths (or email accounts) of majority owners plenty of times. Sometimes they are correct. But sometimes they grossly miscalculate the resolve of the minority owner.

Litigation Costs and Disruptions

Suppose you, as an oppressed minority shareholder, really don’t want to spend the costs of litigation (who does)? Or disrupt your own company – what then? How do you threaten to do something you really don’t want to do without making it look like an empty gesture?

For starters, you have to work backward, analyzing what you would do at the very end of the process, to see what direction you should head at the beginning. Assume you have done everything imaginable to avoid litigation. What then? Are you prepared to simply not enforce any rights you may have? Are you willing to live with the status quo indefinitely if litigation is your only alternative? Suppose you have a pretty strong oppression case to assert, and that you might be able to force the other side to buy you out. Are you absolutely unwilling to file suit in order to obtain that relief? Are you willing to stay as a shareholder indefinitely, knowing the majority shareholders can treat you almost any way they want because they know you will not sue them? If so, you will be negotiating from a position of weakness, but at least your attorney will know that he can push things only so far.

Or do you merely want to make sure that, if you do file business divorce litigation seeking a buyout, you can sleep well at night knowing you did everything under the sun to avoid a lawsuit?

Business Divorce Strategy

Your strategy moving forward, even in the early, pre-suit phase, should be dictated by the strength of whatever cause of action you have. For example, if your potential suit is a close call, maybe you should be less inclined to file it, knowing the impact it will have on current employees. But, even if your suit is extremely strong, you might still be able to avoid a lawsuit.

With clear, settled rights – like an entitlement to be bought out under New Jersey shareholder oppression law that should be obvious to anyone who knows this area – the key is to convince the other side how strong your case is. If you have an experienced business divorce attorney who can do this, while at the same time convincing the majority owners that you do have the will to move forward if need be, then hopefully they will negotiate in good faith. If they do, you might be able to get a fair resolution even without the costs and disruptions to the business that litigation may entail. But if the majority owners do not negotiate in good faith, any shareholder oppression litigation that you file is on them – not you.

©2021 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume XI, Number 127
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About this Author

David C. Roberts Member  New Jersey fraud, fraudulent transfers, trade secret, restrictive covenant litigation, employment litigation, environmental matters, and insurance coverage litigation.
Member

David C. Roberts, Co-Chair of the firm’s Litigation Practice Group, devotes his practice to handling complex commercial litigation matters, such as fraud, fraudulent transfers, trade secret, restrictive covenant litigation, employment litigation, environmental matters, and insurance coverage litigation.

His practice has a particular emphasis on partnership and shareholder disputes, including oppression and dissenter’s rights cases, with a focus on attempting to resolve matters through mediation, if such an approach fits within client’s goals and objectives.  In 2007, Dave launched...

908-252-4205
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