Presenting a live 90-minute webinar with interactive Q&A Litigating Closely Held Business Disputes: Breach of Fiduciary Duty, Breach of Contract and Shareholder Oppression Identifying Causes of Action; Pursuing Emergency Injunctions, Partition and Dissolution; Tackling Valuation Issues WEDNES DAY, MAY 21, 2014 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Michele Lorbieski Anderson, Managing Associate, Frost Brown Todd , Indianapolis Alison G. Greenberg, Counsel, Fensterstock & Partners , New Y ork Aaron Chausmer, Member, Chausmer Law , Atlanta The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Litigating Closely Held Business Disputes Michele Lorbieski Anderson manderson@fbtlaw.com May 21, 2014
Today’s Topics: Causes of Action Remedies Valuation Issues Derivative vs. Direct Claims 6
Shareholder Oppression Commingling of Funds Restrictions on Dividends Reduced Repurchase Price Waste 7
Causes of Action Compel Inspection Breach of Fiduciary Duty Fraud Breach of Contract 8
Breach of Fiduciary Duty Duty of Loyalty Usurpation of Corporate Opportunities Self Dealing Duty of Care Business Judgment Rule Entire Fairness 9
Breach of Fiduciary Duty Duties in Corporations Duties in Partnerships Duties in Limited Liability Companies Duties in Closely Held Businesses 10
Minority Shareholder Rights Inspection of Corporate Records Shareholder Meetings Repurchase of Shares Direct or Derivative Claims 11
Inspection of Corporate Records Limited Access Statute Partnership Agreement Articles of Incorporation Bylaws Operating Agreement Proper Purpose Whether the request for inspection is reasonably related to the plaintiff's interest as a shareholder. Confidentiality Agreements 12
Shareholder Meetings Annual Meeting Special Meeting Notice Requirement Shareholder Consent 13
Fraud Fraudulent Inducement Securities Fraud Pleading Requirements Evidentiary Issues 14
Breach of Contract Governing Documents Shareholder Agreement Implied Covenant of Good Faith and Fair Dealing 15
CLOSELY HELD BUSINESS DISPUTES REMEDIES MAY 21, 2014 Alison G. Greenberg Fensterstock & Partners LLP 100 Broadway New York, New York 10005 Tel. (212) 785-4100 Fax (212) 785-4040 agreenberg@fensterstock.com www.fensterstock.com
Preliminary and Permanent Injunction- Temporary Restraining Orders • Where to file in consideration of ultimate relief. • Jurisdictional amount at issue and nature of claim. • Commercial Division, New York County - monetary threshold is $500,000 and look to nature of claim. • Temporary Restraining Order • Whether ex parte or notice required, and type of notice. 17
Preliminary and Permanent Injunction • New York CPLR 6301 “Where it appears that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be held.” • Is client prepared to post a bond. • Fact affidavit from party required in New York. • Seek expedited discovery. 18
Injunctive Relief - Preliminary and Permanent Injunction • Account for official conduct • Set aside conveyance, assignment or transfer where transferee knew of unlawfulness • Enjoin actions. • Appoint receiver pending new election where directors are acting fraudulently or in bad faith. Welcke v. Trageser , 131 A.D. 731, 116 N.Y.S. 166 (1st Dep’t 1909) • Where appraisal not available, injunctive relief to stockholders may be appropriate. Goldberg v. Meridor , 567 F.2d 209 (2nd Cir. 1977) 19
Partition • Physical division by sale and distribution of net proceeds. • Sale of a co-owner’s interest by another co-owner. • Partition by appraisal. • Action for partition with appointment of referee. • Claims for accounting, breach of lease or breach of fiduciary duty to be filed in separation action. • Referee with additional capacities. 20
Partition • Article 9 of New York Code • Interlocutory judgment – N.Y. RPA Law §915 • Venue – County where property situated • Challenge to referee final report. • Koniosis v. Tsororos , 83 A.D.3d 665, 920 N.Y.S.2d 403 (2 nd Dep’t 2011) • Partition is equitable in nature. • Fee award to referee. • Partition and other relief denied where based on oral agreement. Razavi v. Shackelford , 260 Ga. App. 603, 580 S.E.2d 253 (2003) • 21
Dissolution • Limited Liability Companies Whenever it is not reasonably practicable (New York) In re 1545 Ocean Ave., LLC, 72 A.D.3d 121 (2nd Dep’t 2010) • Partnerships and Corporations Oppressive conduct against a limited partner or minority shareholder. Horning v. Horning Constr. LLC , 12 Misc.3d 402, 413, 816 N.Y.S.2d 877 (N.Y. Sup. Mar. 21, 2006) • Disagreements between partners with regard to an accounting, without more, are insufficient to warrant dissolution. Red Sail Easter Ltd. Partners, L.P. v. Radio City Music Hall Prods., Inc., 1992 WL 251380 (De. Ch. Sept. 29. 1992). 22
Other Relief • Money Damages • Lost profits • Punitive damages • Attorneys’ fees (if contractual term) • Accounting • Ultimate relief sought • Constructive Trust • Confidential relationship or fiduciary duty owed 23
Forced or Amicable Buy-Out • Buy- Out • Valuation Marketability Discount Balsamides v. Protameen Chems., Inc. , 160 N.J. 352 (1999) • Indemnification 24
C LOSELY H ELD B USINESS D ISPUTES Derivative or Direct Claim s - and- Valuation Concerns May 21, 20 14 Aaron B. Chausmer Three Ravinia Drive, Suite 1875 · Atlanta, GA 30346 404.856.3992 P · 404.478.8494 F · chausmerlaw.com
KNOW the Applicable Law ! Is the entity a dom estic or foreign entity ? ◊ Many entities may operate solely in one jurisdiction, but have been Derivative incorporated in a different jurisdiction, such as Delaware. or Direct? ◊ See , e.g., O.C.G.A. § § 14-2-747 and 14-11-807 (“In any derivative action in the right of a foreign [corporation or limited liability company], the matters . . . shall be governed by the laws of the jurisdiction of organization of the foreign limited liability company . . .”). 26
Is the Entity a Form al “ Close” Corporation? If so, claimant may be able to proceed directly. Statutory “close” corporations often have special statutory considerations. See, e.g., Derivative O.C.G.A. § 14-2-940 (“a shareholder of a statutory close corporation may petition the or Direct? superior court” for relief); see also Grace Bros., Ltd. v. Farley Indus., Inc., 264 Ga. 817, 819, 450 S.E.2d 814, 816 (1994) (“outside the context of a close corporation, a shareholder must be injured in a way which is different from the other shareholders or independently of the corporation to have standing to assert a 27 direct action”)
Is the Claim Direct or Derivative? To determine if claim is direct or derivative, look at the nature of the alleged wrong. Derivative ◊ Who was harmed? or Direct? ◊ Is the claim an asset of the Entity? ◊ Who needs to be protected? 28
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