May 9, 2021

Volume XI, Number 129

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May 06, 2021

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Business Divorce Litigation Considerations: Strength in Numbers or Should You Go It Alone?

Often a minority shareholder who has issues with the majority owners and wants “out” is not alone; often more than one minority owner has the same, or at least similar, issues or complaints. But is “strength in numbers” always a good thing? When you are one of the multiple oppressed minority shareholders, the first decision of many considerations to make in assessing potential business divorce litigation is whether you should band with the others or go it alone.

Strength in Numbers or Should You Go It Alone?

The “all-for-one-and-one-for-all” approach has obvious benefits. In litigation, strength in numbers can mean several things. Sharing legal fees, expenses, and costs of experts (such as a valuation expert) can be a very significant advantage. In some cases, you may not be able to afford to bring the litigation if you are the only one footing the bill. But the advantages can go beyond mere cost savings. Having two shareholders make the same, or similar, allegations can lend credence to both their stories. After all, it is harder to say two people are lying about the same thing than one person. This issue is less critical when the oppression is fairly straightforward – such as the failure to pay distributions despite the clear ability to do so. But multiple witnesses testifying to the same narrative is more critical when facts are very much in dispute.

There also can be negatives to minority shareholders joining forces. What if your respective versions of events differ because you had different perceptions and experiences? Slight differences can be exploited and argued to be outright lies. It is also critical to note that, if you seek the remedy of a buyout (the most common remedy under New Jersey law), the company must raise the cash to buy out two people, not just one. As you might imagine, in many cases that is a huge deal. If both shareholders would sue in any event, it matters less because you would be competing for the same dollars, whether in the same or separate suits. But if you are wondering whether to approach another shareholder to see if she wants to join the suit you are about to bring, remember you may be enlisting – or even creating – a competitor for limited funds.

Business Divorce Litigation Considerations

Other considerations must be addressed in this litigation approach. Do you have the same settlement strategy? What if you want to spend a limited amount on attorneys’ fees and then get a fast settlement? Does your co-owner have the same goals, or will she want to push for as much as possible and take the case all the way to trial if she does not get the highest number possible? If one of you wants to take a settlement in the middle of the litigation and the other wants to plow forward, what do you do? Is your fellow minority shareholder someone you can work with to address and resolve these issues?

If your respective goals – your “end games” – are dramatically different, being in the same suit may not be worth the cost-sharing savings.

Minority shareholders often have a knee-jerk desire to see if other, similarly situated owners will join their suit. More than one client has lined up another shareholder to do so, only to realize after talking to me that it would have been better to go it alone. See an experienced business divorce attorney before approaching other minority shareholders; you can always approach them afterward if that seems warranted. But an experienced business divorce attorney will help you decide what is the best course for you in your particular situation.

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©2021 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume XI, Number 88
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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...

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