Legal fees often should be awarded to a minority shareholder who is mistreated and oppressed by majority shareholders. The applicable statute allows the court’s discretion to a legal fee award in such a case. But it hardly ever happens. Why not?
Shareholder Oppression Lawsuit
Most of the time, an oppressing shareholder can explain away his or her actions – no matter how bad they may be – enough to persuade the court not to award legal fees. Judges have heard everything and are rarely shocked by the stories they are told in their courtrooms. When your business divorce case is presented to your judge, however badly the majority shareholders have treated you, it is very likely that your treatment by the oppressing shareholders won’t be the worst thing your particular judge hears that day.
A wrongdoing majority shareholder often has many excuses for his or her actions. He may rely on the business judgment rule, which prevents court in most (but not all) instances from second-guessing arguably legitimate business decisions. He may argue that he relied on the advice of counsel, or of a trusted CPA. Or that his conduct is being misunderstood or misinterpreted, and he didn’t really intend what resulted. Judges are trained and inclined to look for compromise solutions wherever possible. As a result, even litigants with strong shareholder oppression cases must realize that the court may very well determine the majority’s conduct to be bad enough to award an oppression remedy (such as a buyout) but not so bad as to award counsel fees.
Legal Fee Award
In addition, since an award is discretionary, it is more likely that an appellate court would reverse an award of fees than reverse a decision to not award fees. Therefore, not awarding counsel fees is the “safer” choice for a court. (Note to all the judges I am currently before: Of course, I am not referring to you!)
Importantly, this is not in any way an insurmountable inevitability. You need a business divorce attorney who will present your case in the strongest light possible to make it clear that yours is the case where an award of legal fees is warranted. But if an attorney is trying to convince you that fees are likely just because the statute has a provision to award them, that may signal that the attorney really does not have much experience in this area.
If fees were awarded more often, there would be more of an incentive for majority owners to behave better and to be more open to settling cases that scream out “shareholder misconduct.” Courts would clear their dockets faster. For the sake of mistreated minority owners all over New Jersey, hopefully, the current reluctance to award legal fees in a successful business divorce litigation is a trend that will reverse.