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How To Prepare For Retaliation From Filing Business Divorce Litigation

Many shareholders contemplating getting a “business divorce” have put up with an intolerable situation for years, because they fear that filing a shareholder oppression lawsuit will somehow make matters even worse.  They might be partly correct in the short term.  But the long-term gains often outweigh temporary negatives.

For example, one client had been marginalized and sidelined for years from all important company decisions and all company financial information.  However, the majority shareholders still had not fired him.  They knew that he needed his income, which kept him dependent on his employment.  When asked if there could be a “guarantee” that he would not be fired if he filed an action seeking a business divorce, the answer was no.  And while it is possible that a court could force the company to take him back pending the outcome of the litigation if the termination was in obvious retaliation for filing suit, the majority shareholders would likely be less transparent, and more devious, than that.  I had to warn him that rather than terminate him, they could simply make a significant cut to his salary.  While a court might find a termination to be obviously retaliatory and reverse it, it would be more difficult to argue that a pay cut was not warranted, if done “properly” by the majority shareholders.  Courts are reluctant to interfere in the day-to-day operations of a company, and such action by the majority will undoubtedly be “justified” by the fig leaf of a decline in sales or increased cost of inventory.

Ultimately, the client declined to go ahead with his suit at that time, and instead opted to prepare to file suit in a year.  He scrimped and saved and sold certain assets (including a vacation home) to make himself more able to withstand some short-term pain with respect to his income.  Unions often take this approach with their members in advance of an anticipated strike, telling them to do whatever they can to prepare for an inevitable work-stoppage.  But after just a few months into his “austerity plan,” he decided that the actions of the majority shareholders simply could no longer be tolerated.  He had been put in a position of being forced to accept almost any conduct, including family members being hired and huge bonuses being paid to the majority shareholders.  Ultimately, continuing to wait seem comparable to allowing his house to burn down because he was afraid of any water damage.

Only you can decide whether shareholder dispute litigation is the only way to protect your interests.  But most, if not all, plaintiffs in such litigation wish they had filed suit years before.  At the very least, you should consult an attorney to discuss litigation that might be filed a year or more from now, or if remedies short of full-blown litigation could provide you some relief.  If the situation is dire enough to be Googling articles like this one, ignoring the problem is likely to make it worse.

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