Storing Up Trouble: Court Finds Storage Company Co-Owner Breached Fiduciary Duty

Storage Units

We’ve learned of yet another woeful tale of business divorce involving a closely-held corporation.  The story starts back in 1997, when Peter Trowt (“Trowt”) and Richard Silva (“Silva”) incorporated a company called Beverly Storage Warehouse & Trailer Leasing, Inc. (“Beverly Storage”).  Beverly Storage made money by renting out storage rooms at its warehouse in Beverly, MA and by renting out trailers.  Both Trowt and Silva were fifty percent owners of Beverly Storage and, from the outset, agreed to split all business profits and losses equally.  They also agreed that Silva would handle the financial aspects of the business, while Trowt … Continue reading

The Power of Corporate Documents

The Power of Corporate Documents

I have written a great deal on this blog about the heightened fiduciary duties that exist between shareholders in a close corporation.  There is no doubt that these special duties are important and will govern many disputes between warring factions of a small business.  However, before either party starts lodging accusations of breach of fiduciary duty, it is wise for both sides to ascertain whether there is a written provision of the corporation’s articles of organization (or a shareholder agreement) that expressly governs the conduct or circumstances at issue.  Better yet, well before tensions arise – ideally, when relations are … Continue reading

Work It Out: Massachusetts Business Litigation Session Decision Highlights the Wisdom of Settlement

Work it out

For LLC members facing allegations of breach of fiduciary duty, the negotiation table is often a far more hospitable environment than a Massachusetts courtroom.  This is the lesson learned by the defendants in a recent Massachusetts Superior Court case, Beninati v. Borghi, in which Judge Sanders imposed millions of dollars in damages and equitable relief on several individuals who she found had breached their fiduciary duties to the business organization known collectively as “Work Out World.” This particular tale of business divorce began in 1999, when Anthony Beninati (“Tony”), Steven Borghi (‘Borghi”), and Joseph Masotta (“Masotta”) opened the first of … Continue reading

Fractured Family: Market Basket Ousts CEO Arthur T. Demoulas

abandoned cart

In the latest iteration of the Market Basket boardroom saga, Arthur T. Demoulas was ousted as Market Basket’s CEO during this week’s election of corporate officers.  In his place, company consultants Felicia Thornton and James Gooch were elected as co-CEOs, effective immediately. In a statement issued by the Board of Directors, the Board stated that Arthur T. Demoulas will not retain any management responsibilities moving forward but remains a shareholder of the corporation. The Demoulas family drama came to a head last year, when Arthur T. Demoulas’s cousin, Arthur S. Demoulas, gained control of the Board of Directors and won a … Continue reading

Frozen in Place: SJC Rejects Shareholder’s Attempt to Compete with Close Corporation after “Freeze Out”

ice

As I have previously discussed on this blog, in Massachusetts, members of close corporations owe fiduciary duties to one another and to the corporation.  In Selmark Associates, Inc. v. Ehrlich, the Massachusetts Supreme Judicial Court (“SJC”) recently made clear that a shareholder who has been “frozen out” of a close corporation, but who retains an ownership interest in it, cannot compete with that corporation in violation of his continuing fiduciary duties. Selmark involved two Massachusetts close corporations, Selmark and Marathon, that provided outsourced sales support to companies lacking their own sales force.  Starting in 1997, Evan Ehrlich (“Ehrlich”) worked as … Continue reading

No Way Out, Part II: Minority Shareholders Not Entitled to Buy-out

crossedfingers

The Delaware Supreme Court recently affirmed the Court of Chancery’s dismissal of a suit seeking a corporate buy-out of a minority shareholder’s interest in a closely-held corporation. In Blaustein v. Lord Baltimore Capital Corp., the plaintiff owned about 17% of the voting stock of a closely-held corporation called Lord Baltimore Capital Corporation (“LBCC”).  The plaintiff alleged that she invested in LBCC based on the controlling shareholder’s oral promise to repurchase her shares at full value after 10 years.  However, this arrangement was never incorporated into the corporate shareholders’ agreement.  Ten years came and went, and when plaintiff sought to enforce … Continue reading

No Way Out? Delaware Court of Chancery Finds LLC Agreement Waived Members’ Right to Judicial Dissolution

Delaware Road Sign

The Delaware Court of Chancery recently took the concept of freedom of contract to a new level.   Under Delaware’s LLC statute, 6 Del. C. § 18-802, an LLC member may apply to the Court of Chancery for judicial dissolution of an LLC “whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.”  The Court of Chancery has already determined that this statutory right to judicial dissolution is not mandatory, but, instead, may be expressly waived by the terms of an LLC agreement.  But what happens when waiver language in an … Continue reading

Everyone Wants a Say: Determining Who Gets to Vote on an LLC Derivative Suit

taxis-sm

The Massachusetts Appeals Court recently issued an interesting decision concerning the authority a group of LLC members needs to bring a derivative suit under Massachusetts law. The case, Williams v. Charles, involved an LLC called Frowmica, which was organized for the purpose of negotiating and financing the purchase of a taxicab business.  Within a year after entering into the operating agreement, relations between the LLC members began to deteriorate.  Some members claimed that the managing member, Jean Bernard Charles (“Charles”), had taken various actions adverse to Frowmica, such as terminating the operations manager without cause, wrongly paying himself a salary … Continue reading

How the State of Incorporation of Your Small Business Affects the Duties Owed Between Shareholders

incorporated

Let’s say that you are starting a small business in Massachusetts and are trying to determine where you should incorporate.  The Massachusetts Supreme Judicial Court has held that the law of the state where a Massachusetts corporation is incorporated governs matters of that corporation’s internal affairs.  This is true even where the corporation primarily conducts its business in a state other than its state of incorporation.  So, for example, a corporation doing business in Massachusetts but incorporated in Delaware will be subject to Delaware corporate law.  Therefore, the decision of where to incorporate is an important one and affects which … Continue reading

The Saga Continues: Demoulas Family Back in Court

Market Basket

Just when it seemed that the Demoulas feud had died down for the summer, the family was back in Suffolk Superior Court this past month. This time, the side of the family aligned with management of the Market Basket chain (the Arthur T. side) was seeking an injunction to block the issuance of $300 million in dividends to the company’s shareholders. The Arthur T. faction alleged that the board chairman, Keith Cowan, who had voted in favor of the large distribution, is not “independent”, as required by an earlier court order in the case. In response to the Arthur T. … Continue reading