Shareholder Disputes

NCLAT Overturns Firing of Executive Chairman of Tata Sons and Reinstates Him As Chairman

September 18, 2020 | Peter S. Lubin and Patrick Austermuehle

We often hear people talk about private companies going public, but it’s not as often that it goes the other way around – from a public company to a private one. There’s a lot of paperwork involved either way, but unless you have a plan for repaying your investors, going from public to private also means you are denying your shareholders (especially minority shareholders) the stake in the company for which they have already paid.

The National Company Law Appellate Tribunal (NCLAT) said as much in a recent ruling in which it decided against allowing Tata Sons, the holding company of Tata Group, to convert itself from a public company to a private one. Although the Registrar of Companies had approved the transition, the NCLAT said that approval went against Section 14 of the Companies Act of 2013. The NCLAT also pointed out that the move, made by the directors and majority shareholders of the software conglomerate, would be oppressive towards the company’s minority shareholders.

The NCLAT also reinstated Cyrus Mistry as the company’s executive chairman. He had previously been fired back in October of 2016 due to a supposed lack of performance, but the NCLAT ruled that his firing had been illegal.

Mistry’s family owns an 18.4% stake in Tata Sons, making them a minority shareholder of the conglomerate, and Mistry’s legal troubles with Tata Sons began in 2016 with accusations of mismanagement and oppressing minority shareholders – charges that eventually led to Mistry getting ousted as executive chairman. Continue reading ›

Maryland High Court Officially Recognizes Independent Cause of Action for Breach of Fiduciary Duty

September 16, 2020 | Peter S. Lubin and Patrick Austermuehle

Maryland’s highest court, the Court of Appeals, recently settled a longstanding question regarding whether Maryland law recognized an independent cause of action for breach of fiduciary duty. With its opinion in Plank v. Cherneski, the Court resolved an area of confusion that has troubled Maryland courts for more than 23 years since the Court’s 1997 opinion in the seminal case of Kann v. Kann.

In 1997, the Kann court held:

There is no universal or omnibus tort for the redress of a breach of fiduciary duty by any and all fiduciaries. This does not mean that there is no claim or cause of action available for breach of fiduciary duty. Our holding means that identifying a breach of fiduciary duty will be the beginning of the analysis and not its conclusion.

Judge Agrees Shareholders Were Oppressed, But Deliberates Over How to Compensate Them

September 12, 2020 | Peter S. Lubin and Patrick Austermuehle

Investing is supposed to be a long-term strategy to build wealth, but expecting shareholders to wait more than 60 years before they can get a fair return on their investment is far beyond what any investor would consider reasonable.

That was allegedly the case for the minority shareholders of Promega Corp., the biotechnology company based in Fitchburg, Wisconsin. According to a lawsuit filed by shareholders back in 2016, Bill Linton, Promega’s founder and CEO, allegedly used manipulative and bullying tactics to become a majority shareholder of the company. His actions allegedly left the minority shareholders with no hope of getting a decent return on their investments before 2078 at the earliest.

Circuit Judge Valerie Bailey-Rihn, who has been hearing the case, has said that she was leaning towards the plaintiffs and agreeing that they had been oppressed by Linton’s actions. Now the only two things left to determine are 1) how to punish Promega and provide restitution for the minority shareholders who were allegedly oppressed by Linton’s actions; and 2) how to determine the price of the stocks for which the minority shareholders are allegedly owed compensation. Continue reading ›

MetLife Allegedly Underreported Claims to Investors

July 29, 2020 | Peter S. Lubin and Patrick Austermuehle

Back in January of 2012, the City of Westland Police and Fire Retirement System filed a class-action lawsuit against MetLife Inc. They alleged that the insurance company used data from the Social Security Administration’s “Death Master File” (DMF) to determine when to stop paying annuities to deceased policyholders, but allegedly did not use the same database to determine when to pay out life insurance policies or the Retained Asset Account, although it could have easily done so.

The insurance company also allegedly failed to include data from the DMF regarding its pending payouts in its quarterly reports to its shareholders, thereby underreporting to its investors the amount of money it would have to pay out to policyholders and overestimating its quarterly profits. This withholding of information made MetLife’s investors think the company had less money in outgoing payouts than it actually had, which allegedly resulted in MetLife maintaining stock prices that were artificially high – as soon as the information was made public, the insurance company’s stock prices allegedly dropped and the plaintiffs of the lawsuit allege they suffered financial damages.

Despite the fact that regulators had looked into the insurance company’s alleged misuse (or at least misreporting) of the data contained in the DMF, MetLife also allegedly failed to disclose to its shareholders the fact that regulators were investigating the insurance company’s misuse of the DMF. Continue reading ›

Court Dismisses Breach of Fiduciary Duty Claims against Directors for Optimistic Earnings Forecasts

June 4, 2020 | Peter S. Lubin and Patrick Austermuehle

Directors of a corporation owe fiduciary duties to the shareholders of the company. This means that when directors communicate with shareholders about the company, they have a fiduciary duty to exercise due care, good faith and loyalty. Directors can be held personally liable if they intentionally or recklessly mislead shareholders about the business or condition of the corporation. A Delaware Chancery Court recently dismissed a suit filed against the directors of GoPro, Inc. by a group of disgruntled shareholders who alleged that the directors misled them by issuing overly optimistic revenue guidance that the company was unable to live up to.

In 2016, GoPro, the camera manufacturer, had plans to roll out several new products to the market including a premium drone equipped with the latest GoPro cameras and a new wearable camera that has become ubiquitous among outdoor enthusiasts and influencers around the globe. GoPro’s board of directors issued revenue guidance for 2016 based on projected sales of both products. The revenue forecasts were generally positive. Continue reading ›

Illinois Court Rules that Minority Shareholder Failed to Establish Violation of Right to Examine Corporate Books and Records

May 30, 2020 | Peter S. Lubin and Patrick Austermuehle

Minority shareholders in closely held businesses generally lack the ability to control the actions of a company which makes them vulnerable to oppression from the controlling shareholder or shareholders. Minority shareholder oppression claims frequently include allegations that the controlling shareholders have funneled company money or resources to themselves and attempted to hide the misconduct by excluding minority shareholders from accessing books and records. Minority shareholders in Illinois are not without recourse, however, as they have a statutory right to examine the corporation’s books and records. As the First District appellate court recently reminded us, the right to examine corporate books and records demands compliance with certain technical requirements.

The case, Elleby v. Forest Alarm Service, Inc., was filed by a minority shareholder, Ruth Elleby, who owned a 33.5% interest in Forest Alarm Service, Inc. which the complaint described as a family-owned, closed corporation. In addition to Elleby, Forest had three other shareholders: Linda Lichtenauer, Mark Coyle, and Ron Lyngen who owned 33.5%, 16.5%, and 16.5% of Forest, respectively. Coyle was the President and Secretary of Forest in addition to being a shareholder. Continue reading ›

Company Required to Produce Books and Bank Accounts for Third-Party Monitor During Litigation

February 26, 2020 | Peter S. Lubin and Patrick Austermuehle

After several former employees stole and destroyed internal data from their employer in order to found a competing business, and were sued, the trial court’s appointing of a third party to monitor the new company’s compliance with discovery and restraining orders was not error.

Shamrock Corporation has sold antifreeze, motor oil, and heat transfer fluids since 1974. Eventually, John Dreamer, Sr. became the sole shareholder of Shamrock. When John died, his wife, Annie Dreamer, became the sole shareholder. The entirety of Shamrock’s stock is held in a trust with Annie as the beneficiary.

Shamrock had five employees: John Dreamer, Jr., Les Kreifels, Steven Wroblewski, David Wells, and Chris England. The Dreamer family decided to sell Shamrock and offered Wroblewski and Wells the opportunity to make the first offer. The two submitted an offer that was financially acceptable but included collateral terms that the Dreamer family refused to accept. In August 2017 Shamrock made a counter-offer that revised some of the collateral terms.

In September 2017, Wroblewski and Wells abruptly resigned. England resigned four days later. Just prior to their resignations, the three had Beaver Shredding, Inc. destroy several boxes of documents at Shamrock’s headquarters. The three also deleted large amounts of data from Shamrock’s internal computer system. Prior to the deletion, Wroblewski had uploaded data from the computers to the digital storage site Dropbox. Continue reading ›

Court Finds that Engineering Firm Oppressed Minority Shareholder who Raised Concerns with Owner’s Self-Dealing

February 16, 2020 | Peter S. Lubin and Patrick Austermuehle

As we have written about previously, one of the concerns with purchasing a minority stake in a closely held corporation is the potential for shareholder oppression. This concern is even more relevant when a non-family-member considers buying into a family-owned business. One minority shareholder found this out the hard way when he suffered a backlash after raising concerns about the conduct of the founder and majority shareholder of a closely held Illinois corporation.

In 1962, Kenneth Packer founded Packer Engineering Inc. (“PEI”) and its parent company, The Packer Group, Inc. (“TPG”), in Du Page County. Packer soon grew PEI into a well-respected professional engineering firm. Both PEI and TPG shared a number of the same officers and directors, including Packer who served as the board chairman for both companies.

In 1979, Edward Caulfield was hired by PEI as its director of mechanical engineering. In 2002, Caulfield became president and chief technical officer of PEI. Caulfield was offered a minority equity interest in TPG in addition to his base salary of $500,000. Continue reading ›

Seventh Circuit Gives a Wide Berth to Business Judgment Rule Following the Deference Required by the Indiana Legistlature in a Shareholder Oppression Case

June 9, 2019 | Peter S. Lubin and Patrick Austermuehle

No withstanding allegations of majority shareholder oppression, the Seventh Circuit rejected those arguments paying deference to the business judgment rule because of the Indiana Legislature’s directive to give officers and directors a wide berth for their business decisions. The Court observed:

“Indiana has statutorily implemented a strongly pro-management version of the business judgment rule,” G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227, 238 (Ind. 2001)— the rule that creates “a presumption that directors making a business decision, not involving self-interest, act on an informed basis, in good faith, and in the honest belief that their actions are in the corporation’s best interest.” Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds in Brehm v. Eisner, 746 A.2d 244 (Del. 2000).

You can listen to the oral argument before the court here:

Lubin Austermuehle’s Chicago Shareholder Oppression Attorneys and Chicago Defamation Attorneys Honored by Super Lawyers

June 8, 2019 | Peter S. Lubin and Patrick Austermuehle

Super Lawyers named Chicago and Oak Brook shareholder oppression attorney Peter Lubin a Super Lawyer in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Patrick Austermuehle of the Firm was named a Rising Star again and has a great deal of experience as a Chicago Defamation Libel and Slander Lawyer. Peter Lubin and Patrick Austermuehle have achieved this honor for many years which is only given to 5% of Illinois’ attorneys each year.

Lubin Austermuehle’s Oak Brook and Chicago business dispute lawyers have over thirty years experience in litigating defamation, breach of fiduciary duty and shareholder oppression lawsuits. Our Chicago non-compete agreement and trade secret theft lawyers prosecute and defend many types of unfair business practices and emergency business lawsuits involving injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud.

Lubin Austermuehle’s Wheaton, Schaumburg, and Evanston business litigation attorneys have more than two and half decades of experience helping business clients unravel the complexities of Illinois and out-of-state business laws. Our Chicago business, commercial, class-action, and consumer litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Oak Brook, near Naperville and Aurora, we serve clients throughout Illinois and the Midwest.