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The Discovery Process In Shareholder Dispute Litigation

When clients first come in for a consultation regarding potential shareholder dispute litigation, they are normally upset over some recent, often traumatic, event. Some have just been fired, while others have recently discovered that their business partner, whom they trusted, has been stealing from the company. Whatever the particular issue is, many clients want to get right to the end of the case and have the judge award them whatever relief they are seeking. Prospective clients often say they want to get before a judge, NOW, and tell the judge what their business partner has done. Surely, after hearing what happened, the judge will put a stop to it.

Nothing would be better for clients, and the system generally, than if it were this easy. But often it’s not. Usually, there are numerous steps that simply cannot be avoided before you can tell your story to a judge and expect relief.

The usual discovery process normally cannot be bypassed. As much as you know in your very soul that you are right, and that your business partner is a snake, you simply cannot assume that the judge, who has never met either one of you, will take what you say at face value and discount the lies that your business partner is sure to tell. There is no substitute for evidence, and you are paying your lawyer to win, not just to get you an audience with the judge.

In order to put you in the best possible position to win, your lawyer will have to go through a careful analysis of what evidence you will need and how you will go about getting it. You must exchange documents with the other side and obtain certain other information, like the identity of any expert that either side will retain. Deposing witnesses is within your attorney’s discretion, but it is a tremendous risk to skip this crucial step simply to save time and money. Moreover, you will not be able to get around the fact that the other side will likely want to depose you.

And, quite often you will need an expert, often a forensic accountant, to prove your allegations. For example, I had one case where my client insisted that his business partner was stealing from the company, but the books and records reflected that the monies taken were documented as “officer loans.” A forensic accountant was able to determine that the “loan” documentation did not appear until after my client first complained about the missing cash. It did not take very long to settle that case, once the other side saw what our forensic accountant had uncovered.

It is crucial to hire an attorney experienced in shareholder dispute litigation, who knows how to focus the discovery so that precious resources are not wasted.

These steps all may seem obvious, but I cannot stress enough how many clients simply want to get in front of a judge and don’t see why it will take so long to get there. It is the attorney’s job to explain all of this to the client. In my next posting, I will discuss those rare instances in which an oppressed minority shareholder MAY be able to get in front of a judge right away, at least to obtain some limited relief.