Articles Posted in Closely Held Businesses

It’s almost always newsworthy when a friend or family member of a wealthy celebrity publishes a “tell all” book or files a lawsuit against the celebrity in question or against other people close to the celebrity. But all this gossip has to be taken with a grain of salt, especially if the person making the accusations never bothered to make them until after they were cut off from the celebrity. Money is a powerful motivator for a lot of people and it’s common for some to lash out after having been cut off.

The 92-year-old Sumner M. Redstone, a media mogul with a $42 billion media empire that includes CBS and Viacom, has been accused by his ex-girlfriend and long-time friend of losing his mental competence. The friend is 51-year-old Manuela Herzer, who first started dating Redstone back in 2000 when he was in the process of getting divorced from his first wife. Redstone asked Herzer to marry him, and although she turned him down, the two remained good friends and Herzer has reportedly been active in Redstone’s entertainment companies.

Herzer received gifts, real estate money, and tens of millions of dollars in cash from Redstone. She even moved into his $20 million mansion at his request, and he gave her the mansion in his will, along with an addition $50 million. Herzer helped make healthcare decisions for Redstone, along with Sydney Holland, whom he was dating at the time. Holland was ejected from the home in 2015 after admitting to having been unfaithful, at which point Herzer said she took over the management of Redstone’s healthcare.

That all ended suddenly last October when Herzer was ejected from both the mansion and Redstone’s will in one fell swoop. Continue reading ›

An interesting recent Illinois appellate court decision from the First District addressed who may inherit from a testator’s estate when one of the named beneficiaries dies before the testator, with the outcome turning on the meaning of “survivors” as written in the will.  Albert Lello, who passed away in 2012, drafted a will leaving his entire $8.2 million estate to his wife and two sisters “in equal shares, or to the survivor or survivors of them.” One sister, Virginia H., predeceased him by seven months. Her four children argued that “survivors” referred to them as the survivors, or heirs, of one of Albert’s named beneficiaries, and they should inherit what would have been her one-third share. The Cook County probate court and First District appellate court disagreed, siding with the two surviving beneficiaries, Albert’s widow and sister Rita S., who argued that the will unambiguously created a class gift that could only be inherited by surviving members of that class.

In 2013, Virginia’s children filed a petition for construction of the will, alleging that Albert would have intended them to inherit Virginia’s share because of the close relationship they shared with him and the fact that he had no children of his own, and that ambiguity in the will as to the “survivors” language should be construed in their favor under state laws of intestate succession. After further motions by both sides, the probate court entered an order finding the will unambiguous as a matter of law. Continue reading ›

The following lists some of the key factors to consider as you face business dispute or shareholder dispute litigation:

Business Litigation Goals. It is important to consider what you hope to accomplish through business dispute litigation. It is important to consider the ideal end result as you evaluate your options and litigation strategies. Unfortunately, the ideal end results often gets lost in the highly-charged emotions of litigation so it is important to set out your litigation goals at the outset and remind yourself of your optimal resolution through the partnership litigation process. Understanding your goals will also help you evaluate potential settlement offers.

Litigation Strategy. It is important to know where you want to go so that you can then develop a litigation strategy, a legal map of sorts, on how you plan to reach your end goal. A business litigation strategy should be developed in close collaboration with your business litigation lawyer. At Lubin Austermuehle, our knowledgeable Illinois business lawsuit attorneys can help you analyze complex legal issues, such as potential violations of fiduciary duties, alleged breach of contracts, available accounting information, and civil procedure requirements, in order to develop the appropriate business litigation game plan.

Franchises can be a great opportunity for a business to branch out and expand while limiting their risks, but only if the contract is fair to both parties. Any time anyone signs a contract, they should read it carefully and have a qualified attorney look it over or they could find themselves bound to abide by terms they never meant to agree to.

Contracts exist in order to hold both parties accountable and make sure everyone does what they said they would do. They also provide guidelines for how to break up the business in the event one or more parties want to leave.

When going into business with family, it can be tempting to trust that they’ll do what they say they’ll do, but that’s actually a really bad idea. Business disputes and familial disputes can get very messy and even more so when they’re combined, as in the recent dispute over the cheesesteak restaurant, Tony Luke’s.

Anthony “Tony Luke” Lucidonio Sr. founded the restaurant in 1992 in Philadelphia and has since opened several more locations. In 2007, his son, Anthony “Tony” Lucidonio Jr., recommended his father and brother, Nicholas Lucidonio, become franchisors with Tony Jr. as the franchisee. The agreement allowed Tony Jr. to use the Tony Luke name in exchange for franchise fees and 15% royalties. Continue reading ›

Companies doing business in America are influenced by multiple factors. Not only do they need to keep track of the federal and local laws that vary between states and even cities, but court systems in different locations treat businesses differently.

Every year, the Lawsuit Climate Survey is used to rank states on how fair they are to businesses that get sued. This year, the survey was conducted by Harris, a polling firm, on behalf of the U.S. Chamber’s Institute for Legal Reform.

In 2010, Illinois was ranked 45th, out of all 50 states and it’s only gotten worse since then. In 2012, the last time the survey was conducted, Illinois ranked 46th. Now the most recent poll has put us in 48th place, ahead of only Louisiana and West Virginia. Continue reading ›

Familial relationships can be tough. When you combine them with the added stress of trying to run a family business together, sometimes it can be a recipe for disaster. Marla Cramin, the owner of Sarkis Cafe, a popular diner that has been business in Evanston for many years, has filed a second lawsuit against her brother, who also happens to be the former manager she had hired to run Sarkis Cafe for many years.

Cramin and her husband, Jeff Cramin, bought the diner in 2000 from its original owner, Sarkis Tashjian. When Jeff died in an accident in 2002, Marla hired her brother, Scott Jaffe, to manage the diner for her. Cramin fired her brother in 2012 and he went on to start his own restaurant in Highland Park, which just opened in April. It was originally called the Order Up Diner, but after he settled a lawsuit with his sister, he changed the name to the Uptown Diner. Continue reading ›

Trade Secrets: Buckley v. Abuzir, 2014 IL App (1st) 130469

“You’re Hired: Now Hand Over the Goods”

In addition to potential tax advantages, the principal reason to create a corporation is limited personal liability, which means that the debts and liabilities of the corporation are distinct from those of its shareholders. However, in certain circumstances, courts are empowered to ‘pierce the corporate veil’ and impose personal liability on the officers and potentially even the shareholders of a corporation if there has been gross undercapitalization of the corporation, or if corporate funds have been improperly comingled with non-corporate funds, or if it finds that a ‘sham’ corporation has been designed to improperly shield the individual directors or shareholders from personal liability.

What if, in order to obtain proprietary information, an employer created a sham corporation, hired you as an employee, and then claimed your former business’s lifeblood — all its proprietary trade secrets? That is what is alleged in the April 2014 Illinois appellate case, Buckley v. Abuzir, 2014 IL App (1st) 130469. Continue reading ›

The fate of the Los Angeles Clippers has been unsure ever since the owner, Donald Sterling, made headlines with some racist remarks he made that were recorded and released to the media. On the tape, Sterling is heard deriding his girlfriend, V. Stiviano, for having her pitcture taken with black people and saying that he did not want them brought to Clippers games.

Although Sterling has asked forgiveness for what he said, claiming that they were nothing more than emotional remarks made in the heat of a “lovers’ quarrel”, the public has been unforgiving. The NBA responded by banning Sterling from the association for life, a move which was followed by Sterling filing a lawsuit against the NBA for allegedly violating his civil rights.

Since the incident, Sterling’s estranged wife, Shelly Sterling, has entered into negotiations to sell the Clippers to a less controversial owner. She has agreed to sell the team for $2 billion to Steve Ballmer, the CEO of Microsoft, but the question remains whether Shelly has the authority to sell the team. Initially, the dispute centered around the questionable mental state of the 80-year-old Donald. Two doctors examined Donald and found him to be mentally incapacitated. Continue reading ›

When someone decides to start a new company, it is natural that they should want people they already know and trust to invest in their new company. On the other hand, when those old relationships turn sour, it can lead to schemes to cheat other investors out of the true value of their shares of the company. This allegedly happened with one of the founders of a brewing company by the name of 5 Rabbit.

The brewery was founded in 2011 by Andres Araya and Isaac Showaki. Each founder had friends and family members help finance the company by becoming investors. In 2013, Showaki allegedly left the company following a dispute with Araya. The investors that Showaki brought to the company remained investors in the company and they are now the plaintiffs in the lawsuit against Araya and another investor.

Before Showaki left the company, Araya allegedly sold 11 shares of the company to “a friend and former colleague” who Araya met in Costa Rica, named Diego Foresi. The 11 shares were allegedly sold for a total of $250,000. The plaintiffs allege that they were never made aware of the sale of these shares. According to the allegations in the complaint that was filed, this sale of shares “was extremely important to (the) plan to artificially depress 5 Rabbit’s share value.”

The lawsuit further alleges that, when a company was hired by 5 Rabbit to determine the value of the brewery, 5 Rabbit “instructed the valuators to treat the investment as debt, not equity as it actually was.” The lawsuit claims that this alleged deception “significantly reduced 5 Rabbit’s fair market value and the implied value of its shares.” Clearly, this had a direct, negative impact on 5 Rabbit’s investors by giving the appearance that the shares they held in the company were worth less than what the investors initially paid for them.

A few months later, the lawsuit alleges that Araya, Randy Mosher, and other investors that Araya brought in as investors to 5 Rabbit (all of whom are named as defendants in the current lawsuit), set up a new company called Benjamin Thomas Inc. Allegedly, Araya, Mosher, and Araya’s other investors all transferred their shares of 5 Rabbit to the new company, making Benjamin Thomas Inc. the controlling shareholder of 5 Rabbit. Benjamin Thomas Inc. and 5 Rabbit then performed a short-form merger. The lawsuit alleges that the purpose of this merger was to force out Showaki’s investors at an artificially low price.

The investors who were allegedly forced out allegedly had their shares converted to cash at a rate of $3,019 per share. Since these investors had paid $5,000 per share, each of them received an alleged loss of about $2,000 for each share that they held.

Once this was completed, Foresi’s “debt” was allegedly converted to equity, and according to the lawsuit, “the fair market value of 5 Rabbit increased significantly, providing a substantial windfall for Foresi.” As a result, not only did the plaintiffs of the lawsuit allegedly lose a substantial amount of money, but Foresi was also allegedly enriched unjustly.

Mosher, one of the defendants in the lawsuit, said that he believes the suit has roots in the argument which led to Showaki leaving the company. “We think we’ve acted fairly in these dealings,” Mosher said in a statement. “We don’t think we’ve created any of the problems. They’ve all come from the other side.”

Continue reading ›

A couple who bought a retail business in New Jersey filed suit for fraud, alleging that the seller materially misrepresented the business’ revenues. After a bench trial, the lower court ruled for the defendants in Walid v. Yolanda for Irene Couture, Inc., holding that the plaintiffs did not demonstrate by clear and convincing evidence that their reliance on the defendants’ misrepresentations was justified. The New Jersey Superior Court, Appellate Division vacated the judgment, finding the defendants liable for fraud, remanding the case, and instructing the trial court to apportion liability among the defendants.

Anwar and Donna Walid, saw an online listing for the sale of a retail business, Irene’s Bridal Shop. They contacted the listing broker, who gave them a “fact sheet” from the owner, Yolanda for Irene Couture, Inc. (YIC). The fact sheet stated that the business had annual sales exceeding $500,000 and profits of almost $300,000. The listed sales price was $700,000. The Walids agreed to a purchase price of $700,000, subject to “proof of sales” and review by an attorney and an accountant. They retained an attorney, but Mr. Walid decided, against the attorney’s advice, to examine the financial reports himself rather than hire an accountant. YIC’s financial information showed annual income from 2003 through early 2006 well in excess of $500,000. The Walids obtained bank financing, and the sale closed in May 2006.

The business failed, and the Walids filed suit against YIC, its owner, and the accountant who prepared the financial reports Mr. Walid had reviewed prior to the sale. They amended the complaint to include Yolanda Couture, Inc. (YC), a New York company owned by YIC’s owner. They alleged that YC’s revenues were deposited into YIC’s bank accounts in order to inflate YIC’s earnings.

Continue reading ›

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