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What Really Underlies Related-Party Shareholder Dispute Litigation?

Shareholder dispute litigation, especially among family members, is often about much more than the controversy actually at stake in the litigation.  There are often underlying psychological underpinnings for what has led to the lawsuit.

For example, in a recent case, the majority shareholder suddenly cut off his brother, a one-third owner, from all financial information.  Despite repeated demands, the majority shareholder simply would not share anything related to the business.  His attorney knew full well that he could not deny my client, at the very least, tax returns and financial statements, as required by the New Jersey statute governing corporations.  And he knew that, if we went to litigation, I would be able to get virtually all financial documentation by filing a motion.  They did not care. I filed my motion and was awarded the documents.  But the brother’s behavior seemed out of line with how the company had been run in years past.

Of course, red flags were raised by the failure to disclose financial information, as it certainly seemed that the majority shareholder was hiding something.  It turned out that he was.  In fact, the majority shareholder had recently caused the company to do many more cash transactions than was normal, and the cash was largely missing.  This is not a new story, as this happens in many closely held (and loosely watched) companies.  What was interesting was the “why.”

The majority shareholder brother had recently been told by his wife that the minority shareholder brother had hit on her several years before.  My client adamantly denied it, and was angry that his brother would even accuse him of such a thing.  The case ultimately settled once my client learned what the issue was, and, at my suggestion, had a “heart-to-heart” with his brother.  Instead of going through costly shareholder dispute litigation, my client was reinstated to his prior position and started receiving financial information again.  The majority shareholder wound up getting divorced.  I have no idea what really happened, but it certainly seemed that the majority shareholder came to believe his brother may not have been the one he truly had an issue with.

Because I listened to what the client was saying, and made every effort to get at the underlying issue, the client saved a fortune in legal fees, and the company avoided what would have been an extremely disruptive litigation.  In a shareholder dispute litigation, make sure you use an attorney who is looking outside the box for ways to resolve your dispute, and who realizes that full-blown shareholder dispute litigation is truly a last resort.

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