Shareholder Litigation & Shareholder Disputes

Despite commercial success, business owners often encounter disputes.  These can occur for a variety of reasons.  Some conflicts may be unavoidable, such as one shareholder stealing from the corporation or his fellow shareholders.  Some result from miscommunication, or from a division of labor and profits which over the years have become askew.  Likewise, a shareholder may make disproportionate payments of salary or dividends to herself.

Some shareholder disputes can be resolved, and some cannot.  When they can be resolved, it is often in the business’s best interest to do so.  In this case, our corporate attorneys, who have decades of negotiation experience, will try to achieve an amicable resolution which meets all the shareholders’ needs and keeps the business running in a profitable manner.  When they cannot be resolved in our clients’ best interests, however, we fight aggressively in defense our clients’ rights. 

Most of these rights are contained in the corporation’s shareholder agreement.  When there is no shareholder agreement, their rights are governed by Title 14A of New Jersey’s business statutes.  When there is no shareholder agreement, Title 14A governs all their rights, which is why it is so important to have a well-drafted shareholder agreement.  A shareholder agreement allows the owners to control their own fate.

Our corporate attorneys have drafted many shareholder agreements (and membership and partnership agreements in LLC’s and partnerships) in a wide range of businesses.  We have a great combination of extensive litigation experience, which gives us a working knowledge of the pitfalls to avoid when drafting shareholder agreements, and financial expertise which guides us in drafting agreements  to maximize return while minimizing taxes.  Indeed, Frank Nardi, in addition to being an attorney, is also a certified public accountant and a certified financial planner.  This combination gives us a distinct advantage when negotiating and drafting shareholder agreements.

Shareholder disputes come in as wide a variety as can be imagined.  However, the essence is that they involve a claim that a shareholder’s rights have been violated.  
For instance, one shareholder may have breached her fiduciary duties to the business or her fellow shareholders.  If a shareholder has a dominant position, whether because he had more shares or ran the business, and he uses that dominant position to violate the rights of a non-dominant shareholder (known as a minority shareholder regardless of the percentage of shares), that is known as “minority shareholder oppression,” and it is illegal.  Our attorneys have handled negotiations and litigation in disputes between the owners of a wide variety of businesses, from health care, to accounting firms, to natural resource firms.

When conflicts arise our attorneys will explore negotiations. We pursue resolutions that protect our clients’ interests.  Many times such an agreement can be reached.  Sometimes, however, it cannot – in major disputes, emotions often prevent immediate, direct and effective negotiation. 

When an agreement cannot be reached alternative dispute resolution (“ADR”) may provide an effective way to resolve conflicts.  However, ADR is voluntary; the parties must agree.  This is not an issue if an ADR agreement is included in the corporation’s shareholder agreement.  This is another reason why it is so important to have an effective shareholder agreement.

The main types of alternative dispute resolution are mediation and arbitration.  In mediation a neutral third-party (a mediator) intervenes and tries to bring the parties together to a mutually agreeable settlement.  In arbitration, another neutral third-party (an arbitrator) hears evidence and issues a binding, unappealable decision, which is swifter and less expensive than litigation (although by no means cheap or quick).

Our attorneys are experienced at all aspects of negotiations and ADR.  We have drafted many shareholders agreements meeting the needs of our clients which include effective arbitration and mediation provisions.  We have decades of negotiation experience, and Maurice McLaughlin has been appointed by the Superior Court of New Jersey to resolve many lawsuits pending there.  Our attorneys have litigated many arbitrations.

When shareholder disputes cannot be resolved, they normally proceed to court.  While New Jersey shareholder litigation can wind up in federal court, it is normally litigated in state court. 

New Jersey’s Superior Court has two divisions which handle shareholder disputes: the Law Division and the Chancery Division.  The Law Division can normally only award money judgments.  However, most shareholder disputes involve complex issues beyond money.  For this reason most shareholder litigation proceeds in the Chancery Division, which can award “equitable” relief, such as restraining orders, forced buyouts, dissolutions of corporations.

Shareholder litigation is complex.  It often involves forensic accounting, business valuation, and extensive document discovery and depositions.  It is important to have an experienced lawyer on your side.  Our attorneys have significant experience in shareholder litigation in many different types of businesses.

If you believe that your rights as a shareholder have been violated, please e-mail us or call our experienced shareholder litigation attorneys at (973) 890-0004.