Shareholder Disputes

Uber CEO Down But Not Out — Chicago Shareholder Dispute Lawyers Near Naperville

August 15, 2017 | Peter S. Lubin and Patrick Austermuehle

Despite stepping down as CEO of Uber, the ride-sharing start-up he founded, Trevor Kalanick’s troubles are far from over. On top of allegations that the company mistreats its drivers, discriminates against and sexually harasses women at work, and stole trade secrets from another ride-sharing service, Kalanick is now being sued by Benchmark, one of Uber’s investors.

In 2016, Kalanick proposed an amendment to Uber’s charter, giving him the right to nominate three new directors to the start-up’s eight-member board. At the time, Kalanick got Benchmark to approve the amendment, but Benchmark is now saying Kalanick deliberately misrepresented key information regarding the company and the amendment, and is now asking for the amendment to be voided.

Six years ago, Benchmark invested in what was then a tiny ride-sharing start-up, called Uber. It bought a 20% stake in the company, which has since grown to be worth billions of dollars. Kalanick and Gurley (and, by extension, Uber and Benchmark) remained close for years until Kalanick and Uber started getting hit by one scandal after another. At that point, Gurley began to put some distance between himself and Kalanick, finally joining other investors to push Kalanick out as CEO of the company.

Although he was forced to give up his seat on the board when he stepped down as CEO, Kalanick immediately reappointed himself to one of the board seats he controls as a result of the amendment he had added last year, and he still holds a 10% stake in the company. It’s not as much as Benchmark’s 13% stake, but it’s enough to make life at Uber difficult for anyone who opposes Kalanick – something he has allegedly set out to do. Continue reading ›

Companies Add Fee Shifting Provisions to By-Laws to the Detriment of Shareholder Rights

December 20, 2014 | Peter S. Lubin and Patrick Austermuehle

Shareholders are not philanthropists. They are investors who expect to see a return on the money they put into a company. Because companies have a vested interest in attracting shareholders, laws have been put in place to make sure they act fairly and honestly when communicating with their shareholders about the state of the company. This generally means requiring companies to reveal the state of their finances, market value, any legal issues they may be having that could affect their profits, etc.

Before handing over large sums of money to the control of another, it makes sense that shareholders would want to make sure their money is in safe hands. If it turns out the shareholders were deceived or lied to, filing a lawsuit against the company for fraud and/or breach of fiduciary duties is common. Unfortunately, thanks to a new ruling by the Delaware Supreme Court, shareholders have a new reason to hesitate before taking their grievances to the courts. Continue reading ›

Lubin Austermuehle’s Oak Brook and Chicago Attorneys Patrick Austermuehle and Andrew Murphy Named 2015 Illinois Super Lawyers/Rising Stars as Class-Action, Business Litigation and Consumer Rights Attorneys

October 31, 2014 | Peter S. Lubin and Patrick Austermuehle

Super Lawyers named Chicago and Oak Brook business trial attorneys Patrick Austermuehle and Andrew Murphy Super Lawyers/Rising Stars in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle’s Oak Brook and Chicago business litigation lawyers have over a quarter of a century of experience in litigating complex class action, consumer rights, and business and commercial litigation disputes. We handle 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.

Peter S. Lubin

online at

Illinois Court Dismisses Putative Shareholder Class Action, Finding Lack of Alleged Injuries – Noble v. AAR Corp.

July 10, 2013 | Peter S. Lubin and Patrick Austermuehle

An Illinois federal court granted a motion to dismiss in a putative shareholder derivative class action, having already denied the plaintiff’s application for a temporary restraining order (TRO). Noble v. AAR Corp., et al, No. 12 C 7973, memorandum and order (E.D. Ill., Apr. 3, 2013). The plaintiff asserted causes of action for various alleged breaches of fiduciary duty on behalf of the corporation, but the court found that the lawsuit was a direct action, primarily for the plaintiff’s benefit as a shareholder, rather than a derivative one.

The dispute related to a recommendation by the Board of Directors to the shareholders of AAR Corporation, a publicly-traded company, regarding an executive compensation plan. The Board made a unanimous proposal regarding the corporation’s “say on pay” plan, which allowed the shareholders to vote on executive pay as required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), 15 U.S.C. § 78n-1. In a seventy-page proxy statement, the Board asked the shareholders to approve an advisory resolution regarding executive compensation at the corporation’s annual shareholder meeting, which was scheduled for October 10, 2012.

The plaintiff filed suit against the corporation and individual Board members, alleging that the Proxy Statement failed to disclose various details about what the Board considered before making its proposal. Noble, memorandum at 5. He claimed that the individual defendants breached their fiduciary duties of good faith, care, and loyalty to the shareholders, and that the corporation aided and abetted these breaches. Id. at 5-6. The defendants removed the case to federal court on October 4, 2012. The following day, the plaintiff filed a motion for a TRO, asking the court to stop the shareholder vote. The court held a hearing on October 9 and denied the motion. On October 10, the shareholders approved the Board’s proposal, with seventy-seven percent of the shares voting in favor. Id. at 1-2.

New Jersey Court Dismisses Claim for Violation of Corporate Opportunity Doctrine in Closely-Held Business Dispute – Egersheim v. Gaud

March 22, 2013 | Peter S. Lubin and Patrick Austermuehle

Two shareholders and former officers of a closely-held New Jersey company, DAG Entertainment, Inc., sued two fellow shareholders, the company, and a new company formed by the defendant shareholders in U.S. District Court. The suit, Egersheim, et al v. Gaud, et al, alleged eighteen causes of action related to alleged usurpation of corporate opportunities. The defendants moved for summary judgment as to fifteen of the eighteen causes of action, and the district court ruled that those causes of action amounted to a single cause of action under the Corporate Opportunity Doctrine. The court granted summary judgment on the fifteen causes of action, allowing three causes to proceed.

Plaintiff Kathleen Egersheim owned a three percent shareholder interest in DAG and was its former Vice President and Assistant Secretary. Plaintiff Christopher Woods owned 22.5% interest and was the former Creative Director. Defendants Luis Anthonio Gaud and Philip DiBartolo owned or controlled most of the remaining stock of the company. According to the plaintiffs, DAG began exploring an opportunity to partner with the media conglomerate Comcast in 2001. The plaintiffs claim they developed characters and show ideas for children’s television programming through 2004.

In 2005, the defendant shareholders allegedly began excluding the plaintiffs from meetings and decisions regarding DAG’s activities, and also allegedly created a new business entity called Remix, LLC without plaintiffs’ knowledge. Remix entered into a formal joint venture with Comcast. The defendants proposed ceasing DAG’s major business operations, according to the plaintiffs, and the defendants voted them out of their officer positions when they objected to this plan in September 2007. DAG essentially stopped operating at that point.

Jury Sides With Goldman Sachs in Dragon Lawsuit

February 12, 2013 | Peter S. Lubin and Patrick Austermuehle

While the internet boom led to a lot of money in a very short amount of time for many people and businesses, it is important to remember that developing business and making business deals are two very different things. The makers of Dragon Systems, a company that sold speech recognition software, learned this the hard way after they sold the company to Lernout & Hauspie in exchange for $580 million in Lernout stock. The deal was made in 2000 and, in 2001, Lernout’s accounting was exposed as a huge fraud. The company collapsed into bankruptcy, taking with it Dragon’s shareholders, including James and Janet Baker, the founders of Dragon and owners of 51% of its stock.

Since then, the Bakers have spent the better part of the past 12 years in litigation against several parties, taking about $70 million in court. In 2009, they turned their legal sights on Goldman Sachs, who had helped negotiate the deal. According to the Bakers, the advice they were given came from a team of four investors who they referred to as the “Goldman 4”. Their testimony presented this team as a group of inexperienced young bankers who had failed to properly perform their jobs. Their inadequacies allegedly cost the Baker’s a fortune while making a pretty $5 million for Goldman Sachs.

The Goldman Sachs side however, tells a very different story. Their financial engagement letter, which was heavily negotiated by high-powered lawyers on both sides, required that it provide nothing more than “financial advice and assistance in connection with the transaction”. As an investment bank, its job did not include that kind of research and due diligence. According to Goldman Sachs, that part of the deal was up to Dragon and its accountants. The firm was responsible only for coordinating the sale, negotiating the price and evaluating growth prospects for Lernout.

In its briefs, Goldman refuted the depiction of the “Goldman 4”. During the trial, the firm provided testimony saying that the Bakers were in a rush to sell Dragon, in part because it was in financial trouble. (Dragon was later sold out of the Lernout bankruptcy for $33 million). Goldman Sachs also pointed out that there were warning signs about Lernout, including news reports about Lernout’s questionable accounting practices. Goldman even provided a memo to Dragon warning that, for these reasons, it should conduct extensive research on Lernout before making the deal.

One of the “Goldman 4”, Richard Wayner, testified voluntarily in order to clear his name. He testified that, after Goldman Sach’s memo warning Dragon about the possible risks involved in selling to Lernout, he had “a very heated conversation” with Ellen Chamberlain, Dragon’s CFO. In this conversation, Chamberlain allegedly said that “Dragon did not want to do this additional level of detail.”

Other problems included Dragon choosing to take an all-stock deal instead of the standard half-stock and half-cash. This was arranged during a meeting which did not include Goldman Sachs (the bank says it was never invited, whereas the Bakers called the bank a no-show). Once the stock was received, the Bakers allegedly did not take steps to hedge the Lernout stock they received, even after they were advised to do so.

After 16 days of trial, the jury sided with Goldman Sachs on all counts and also found that the Bakers had breached their fiduciary duties to the board in failing to inform it of Lernout’s issues.

Lubin Austermuehle’s Oak Brook and Chicago Attorney Peter Lubin Named 2013 Illinois Super Lawyer as Class-Action, Business Litigation and Consumer Rights Attorneys

January 26, 2013 | Peter S. Lubin and Patrick Austermuehle

Super Lawyers named Chicago and Oak Brook business trial attorney Peter Lubin a Super Lawyer in the Categories of Class Action, Business Litigation and Consumer Rights Litigation. Lubin Austermuehle’s Oak Brook and Chicago business trial lawyers have over thirty years experience litigating complex class action, consumer rights and business and commercial litigation disputes. We handle 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.

Peter S. Lubin

online at

Court of Appeals Upholds Bonus Award Against Suit by Minority Shareholders, Applying Safe Harbor and Business Judgment Rules – Warren v. Campbell Farming Corp.

May 17, 2012 | Peter S. Lubin and Patrick Austermuehle

The Tenth Circuit Court of Appeals reviewed a dispute among shareholders of a closely-held corporation in Warren v. Campbell Farming Corporation. It affirmed a district court ruling that the majority shareholder did not breach fiduciary or statutory duties to the corporation by approving a bonus proposal over the minority shareholders’ objections. The court considered arguments relating to conflicts of interest and fairness, the business judgment rule, and the majority shareholder’s fiduciary duty.

Campbell Farming Corporation is a closely-held Montana corporation whose principal place of business is in New Mexico. The plaintiffs, H. Robert Warren and Joan Crocker, were minority shareholders with 49% of the shares, while defendant Stephanie Gately controlled 51%. Warren and Gately served as directors with Gately’s son, Robert Gately, who also served as the president. Stephanie Gately proposed a bonus to her son totalling $1.2 million in cash and company stock, in part to prevent him from leaving the company. Stephanie Gately voted all of her shares in favor of the proposal, so it passed despite Warren and Crocker’s votes in opposition.

Warren and Crocker filed suit in New Mexico federal court, asserting breach of fiduciary duties and various common law claims. The district court ruled in favor of the defendants after a bench trial. It found that, while the bonus met Montana’s definition of a “conflict of interest,” it was permissible under a safe-harbor statute that allowed conflict-of-interest transactions if they were “fair to the corporation.” Mont. Code. Ann. §§ 35-1-461(2), 35-1-462(2)(c). The court also found that the bonus was permitted by the business judgment rule and that the defendants did not breach any fiduciary duties. The plaintiffs appealed to the Tenth Circuit.

The Illinois Securities Act of 1953 Does not Apply to Common Law Damages Claims for Breach of Fiduciary Duty by Sellers of Securities

September 8, 2011 | Peter S. Lubin and Patrick Austermuehle

As a Chicago law firm that focuses on business litigation, Lubin Austermuehle pays close attention to shareholder lawsuits filed in Illinois’ courts. Our Elmhurst business attorneys discovered a case filed in the Appellate Court of Illinois, First District, Fourth Division that answers questions regarding the appropriate statute of limitations to apply in a shareholder action for common law damages.

Carpenter v. Exelon Enterprises Co. is a case filed by multiple minority shareholders against the majority shareholder, Exelon, for breach of fiduciary duty and civil conspiracy. Defendant Exelon owned 97% of InfraSource, and Plaintiffs owned a portion of the remaining 3% of the company. Defendant then allegedly decided to divest its interest in the company through a series of complex merger transactions. The alleged end result of these transactions was to grant all shareholders in InfraSource would receive a pro rata share of the net proceeds. Using its majority stake in InfraSource, Defendant allegedly voted its shares in favor of the merger transactions, which was subsequently executed according to Defendant’s plan. After the merger, Plaintiffs filed suit against Exelon alleging breach of fiduciary duty and civil conspiracy that caused the minority shareholders to be inadequately compensated for their shares in InfraSource. Defendant then moved to dismiss the action because Plaintiffs’ claims were barred under the three year statute of limitations in the Illinois Securities Law of 1953. The trial court denied Defendant’s motion, stated that the applicable statute of limitations was the five year period contained in section 13-205 of the Illinois Code of Civil Procedure. The trial court then stayed the matter and certified the statute of limitations issue for an interlocutory appeal to the Appellate Court.

On appeal, the Court examined Defendant’s argument that, despite the fact that Plaintiffs did not allege specific statutory violations, Plaintiffs’ claims fell within the scope of the Illinois Securities Law and its three year statute of limitations. Plaintiffs argued that, because of the similarities between Illinois and federal securities law, federal case law should be utilized by the Court. Plaintiffs’ cited federal cases holding that securities fraud does not include the oppression of minority shareholders nor does it include oppressive corporate reorganizations, and thus the case did not fall within the purview of the Illinois statute. The Court performed a statutory analysis and determined that subsection 13(A) of the Law did not apply to Plaintiffs because their claims did not arise out of Plaintiffs’ role as purchasers of securities. The Court went on to explain that Defendant’s argument based upon subsection 13(G), which provides a remedy to any party in interest in the unlawful sale of securities, was unpersuasive. Instead, the Court held that subsection 13 of the Illinois Securities Law of 1953 does not “concern retroactive common law damages claims for breach of fiduciary duty brought by sellers of securities in general, or minority shareholders in particular.” By so holding, the Court declared that the three year statute of limitations did not apply and remanded the case back to the trial court.

Carpenter v. Exelon Enterprises Co. provides potential shareholder litigants with a ruling that gives them an additional two years to bring their claims. Conversely, those facing liability in a common law action surrounding a securities transaction should be aware that such claims are viable for a longer period of time than they may have previously thought.

Northern District of Illinois Federal Court Dismisses Double Derivative Shareholder Action Due to Lack of Parent / Subsidiary Corporate Relationship

June 15, 2011 | Peter S. Lubin and Patrick Austermuehle

Members of the board of directors of a corporation have the responsibility to orchestrate the business in such a way that is advantageous to the shareholders and the continued growth and prosperity of the company. However, there are times when those directors may act in a way that serves their own interests, and the only way to protect the business is for shareholders to file a derivative suit on behalf of the company. Lubin Austermuehle is always researching new developments in this field of law, and our Chicago shareholder derivative action attorneys recently came across one such case filed here in the Northern District of Illinois, Eastern District federal court.

Reiniche v. Martin is a double derivative suit brought by individual plaintiffs who are shareholders of a corporation, Health Alliance Holdings (HAH), that itself is a primary shareholder of HA Holdings (Holdings), another corporation. Plaintiffs allege that Defendants sought to freeze them and other HAH shareholders out through a series of illegal and wasteful acts that resulted in an insider transaction to sell Holdings for $10 and debt relief to another company in which Defendants had an interest. That transaction was approved by Holdings’ board of directors in spite of the fact that there was no quorum present to do so, and HAH was denied its right to sit on the board. In doing so, Plaintiffs alleged that the Defendant directors and other shareholders of Holdings breached their fiduciary duties to the company. Defendants then moved to dismiss the suit under Federal Rule of Civil Procedure 12(b)(6), claiming that Plaintiffs lacked standing, their claim was untimely, and the claims are insufficient under the law and barred by the business judgment rule.

The Court held that Plaintiffs did not have double derivative standing because such standing is only granted in the context of a parent/subsidiary relationship, and HAH was only a shareholder in Holdings – it was not a parent or holding company of Holdings. The Court went on to say that because the individual Defendant shareholders were each minority owners, none of them had a controlling interest in Holdings, and therefore did not owe a fiduciary duty to the Plaintiffs. As such, the Court found no policy reason for invoking a double derivative action and granted Defendants’ motions to dismiss.