In a previous blog post, “Don’t Let Ego – Yours or Your Attorney’s – Get in the Way of a Settlement,” I made a passing reference to the strategy of taking discovery (including depositions) from company customers and vendors in business divorce litigation.
The question:
The questions I have received from that blog post have prompted me to write this one, as more than one client has asked when and under what circumstances customers or vendors may properly become involved in a litigated shareholder dispute.
Here’s the answer.
As with most other aspects of shareholder oppression litigation in New Jersey, the answer depends on the circumstances.
There certainly are cases where involving the customers is the proverbial “third rail” and simply cannot be an option. If there is a well-founded fear that customers will want nothing to do with either side if they are brought into the middle of a company’s internal warfare, causing them to leave for a competitor, that risk simply cannot be ignored.
But, what happens when a minority shareholder cannot prove his oppression case without information from a customer that he fears will react poorly to being “dragged in?” If the majority knows of this risk (which he presumably would) and takes advantage of it, should the minority owner forever be subservient and subjugated out of fear that business divorce litigation could damage or even kill the very company he wants to be bought out of?
So, how do I proceed?
In making judgment calls like this, you need an experienced business divorce litigator to help you navigate the issues.
Other options may be available, like asking the customer to answer a few questions off-the-record to see if your suspicions are even accurate. Or perhaps the best move is to go ahead and threaten to serve a subpoena, banking on the fact that the majority owner has more to lose than a minority owner would. This would essentially be a high stakes game of “chicken,” and you would have to be confident that your attorney has given you every conceivable option to exhaust before pressing the nuclear button.
But sitting back passively as you repeatedly get raked over the coals by your business partner is rarely a viable option, no matter how unpalatable the alternative.