In a follow up to a determination after trial on liability…

money

In a follow up to a determination after trial on liability, two years later, Judge Saylor issued his partial ruling on the damages phase of the case in a summary judgment decision in Butler v. Moore.

In this case, the individual parties were shareholders of a cell tower company, Eastern Towers, Inc. After the individual defendants sold off the company’s assets at well below their market value to newly-formed companies and usurped other opportunities of Eastern, the court found them liable for breach of fiduciary duty to the company. For more detailed factual background, see http://www.bostonbusinessdivorce.com/limited-liability-companies/calling-for-trouble-federal-court-finds-members-of-closely-held-cell-phone-tower-company-breached-their-fiduciary-duties/.

The court’s damages decision started with the central principle that a company’s remedy for a fiduciary’s breach is return, whether by means of constructive trust or disgorgement, of improperly divested assets. The Court imposed a constructive trust on all of the assets of the newly created companies, and ordered disgorgement of any profits paid out to the individual defendants from the new companies, rejecting the defendants’ argument that argument that Eastern Towners never could have taken advantage of corporate opportunities because it was insolvent or otherwise incapable of doing so. Defendants’ own conduct, it held (as it had in its liability decision), “led to the financial difficulties that they claim would have prevented Eastern Towners from capitalizing on the opportunities.” The defendants also were ordered to reimburse Eastern for any of its funds spent on defense of the lawsuit and awarded prejudgment interest on the funds to be disgorged.

The minority shareholder’s damages amounted to two years of lost income and, in addition, a declaration determining his ownership share in the company. The court could not determine on the summary judgment record, however, the proper amount of equity that the minority shareholder was entitled – figuring in years of dilution in light of the need for additional capital to fund the company – and left that issue for a later date.

This case stemmed from conduct that began with the minority shareholder’s employment termination in 2004, and continues to this day. The named plaintiff, Eastern Towers’ bankruptcy trustee, argued that the $3 million that defendants claimed were the sum total of their legal fees and expenses was “impossibly low.” This case seems on paper to have been a very good one on which to have reached an early resolution, but, like many business divorces, continues. Stay tuned.

Comments are closed.