March 2, 2021

Volume XI, Number 61


March 01, 2021

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In an Oppression Case, Think Strategically and Don’t File Motions You Know You Can’t Win

Many times, clients will take unnecessarily aggressive postures in prosecuting (or even defending against) shareholder oppression litigation, to “send a message” to the other side. Sometimes, the goal is to drive up the other side’s legal fees on the assumption that they cannot afford the fees while you can. Be very careful with such a strategy.

Shareholder Oppression Litigation Strategy Issues

Cleary, no attorney should file a motion that is frivolous or has no merit. In fact, if your attorney does so, you should probably find a new attorney, because that mindset will only hurt your case, and you, in the long run. However, clients sometimes ask attorneys to “push the envelope” to drive up costs to try to cause the other side to submit.

For example, while sometimes it may be reasonable and appropriate to ask the court to appoint a custodian of the company or a special fiscal agent, doing so where the chance of success is minimal may do more harm than good even if the motion isn’t technically “frivolous.”

Of course, the more motions you file and action you take, you will be driving up your costs as well; but this is an obvious known risk and is easy to take into account.

There could also be a benefit to making an application that you may not win, such as making the other side commit to a story, including about the case as a whole, that you believe you can later show to be a lie. Any time you can lure your adversary into perjuring himself is a positive development for your litigation.

However, filing motions such as this could also cause your conduct to be placed under a microscope. Arguing that only the other side’s conduct should be scrutinized – and not your own – is rarely successful. Asking the court to do this is often viewed by the judge as making her decide too early who is the “good guy” and who is the “bad guy,” which the court will be very reluctant to do at an early stage of the case. So, if you are asking the court to undertake special, specific scrutiny of the majority shareholders, for instance, be prepared to have the spotlight shine in both directions.

You must also be aware that, if you file a motion right out-of-the-box for something like a third party to oversee corporate activities (like a special fiscal agent or custodian) and you lose, you may very well embolden the other side. Your loss – and their win – could be incorrectly viewed as a barometer of the relative strength of your respective cases, which will only make the litigation more difficult to settle. And your attorney can’t very well argue that you didn’t care about the motion, you just did it to drive up their costs.

©2020 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume X, Number 70



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.

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...