Protecting Your Company in the Case of a Marital Divorce

businessdivorce

Last month, we discussed the legal saga between ex-spouses and fellow shareholders of the multi-billion dollar fashion house Tory Burch.  While it is a good cautionary tale for spouses who own a business together, most family-owned companies are much smaller enterprises.  There are more than 1 million businesses in the United States owned by married couples, and unfortunately, like other small businesses, most of them operate without a formal partnership or operating agreement outlining withdrawal or removal procedures of an owner.  If one partner wants out, or wants the other out, a marital divorce leads to a business divorce.  The … Continue reading

Resolve Business Divorce Disputes Without Stepping into a Courthouse

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Involving the court should not be a matter of course in every business divorce.  For good reason, alternative dispute resolution is becoming increasingly popular in dissolving business relationships.  With a strong mediator, pre-litigation mediation is a powerful tool to reach a settlement and avoid the delay, expense, and emotional wrangling of drawn-out litigation. Although mediation often occurs well after the inception of a court case – either by court order or when the parties finally become comfortable with the idea of settlement – it would be smart to explore mediation prior to litigation, or at the inception of litigation.  A … Continue reading

Court Rules on Non-Solicitation Agreement and Social Media

stock-footage-young-woman-in-hair-salon

In Invidia LLC v. DiFonzo, a case involving a non-compete between a Belmont hair salon and its former stylist, the Middlesex Superior Court recently denied the plaintiff’s Motion for Preliminary Injunction. The Court reasoned that Invidia failed to establish that the non-compete would be found enforceable and that the salon would suffer irreparable harm. More interesting was the Court’s stance on the plaintiff’s claims that the stylist used Facebook to solicit its clients. The stylist “friended” eight of the salon’s customers and then her new employer posted on the stylist’s Facebook page that they had hired her. A client responded … Continue reading

Tory Burch: When Business Divorce Meets Real Divorce

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Even after a marital divorce is finalized, the business divorce discord lingers, especially when both spouses are the co-founders and equal shareholders of a $2 billion fashion brand. Tory Burch, a retailer of upmarket women’s apparel, shoes, and accessories, and her ex-husband Chris Burch are embroiled in a court battle over the successful label and his own year-old fashion venture, C. Wonder.  After their divorce settlement, both remained equal shareholders of the Tory Burch brand and continued to hold their positions on its board of directors. Now Tory’s attorneys allege that Chris Burch used his access to Tory’s business information … Continue reading

Pretense versus “Legitimate Business Reasons” for Freeze Outs

Boston Business Divorce

Under Massachusetts law, Wilkes v. Springside Nursing Home, Inc., 370 Mass. 842, 849-52 (1976) established a shifting burden of proof in close corporation freeze out cases. Wilkes instructs that in a close corporation freeze out suit, the defendant carries an initial burden of showing a legitimate business reason for its actions. Courts generally grant defendants a fair amount of discretion, but once a defendant has offered his reason, plaintiff then has the opportunity to show that the reason is simply a pretense, or that the defendant’s objectives could have been achieved in a manner less detrimental to the plaintiff. If … Continue reading

Plaintiffs Satisfy Delaware Pre-Suit Demand Requirement by Rejecting Own Demand

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In Nekoroski v. Mathai, 2012 WL 3126434 (Mass.Super. – Business Litigation Session), the directors and shareholders of OpenRisk, LLC brought suit against the former officers for, inter alia, theft of trade secrets and breach of fiduciary duty.  OpenRisk, formed under Delaware law in January 2011, is a technology company that provides a platform for insurance companies to better assess risk. The defendants, who were “service members” of the LLC until resigning a few months after joining the company, had entered into not only an Operating Agreement with the plaintiffs, but also a Service Agreement.  Defendants moved to dismiss the complaint, … Continue reading

Tricky Transfer of an LLC Interest

200 High St Boston MA

The Suffolk Superior Court recently issued a decision on a motion for judgment on the pleadings in Furman v. Gossels.[1]  The Plaintiffs, four sisters, brought suit against their aunt and uncle, Elaine Gossels and Jerome Furman, alleging various claims regarding the sisters’ claimed one-third interest in a family company. The sisters’ father, Walter Furman, had formed 200 High LLC with his siblings Elaine and Jerome.  The company owns the commercial building at 200 High Street in Boston.  In 2008, Walter and his siblings executed an operating agreement for the LLC and in 2010, Walter passed away leaving his estate (including … Continue reading

Developer Takes Assets, Pins Debt on Daughter

Recently, after an eight day trial, a Suffolk Superior court jury determined that a father was liable to his daughter for breach of fiduciary duty in commandeering the family company’s assets while pinning his daughter with all the debt.[1] In 2002, while the plaintiff/daughter was still a student at Northeastern University, the defendant/father, who had worked in real estate for most of his life, created a real estate development company with the daughter for purchasing, permitting and subdividing real estate. The father made the daughter the sole shareholder and president of the newly created entity (due to his prior credit … Continue reading

Even Success Can Breed Failure

In a recent Suffolk Superior Court decision[1], Judge Lauriat determined that defendants, majority owners of Boylston Cypress LLC (“BC”), were not liable to plaintiffs, the minority members, for breaches of fiduciary duties and contract regarding the LLC’s accounting practices.  BC was created for the sole purpose of developing the Cypress Lofts in Brookline.  It spent $20 million acquiring the property and constructing the condominiums and parking spots.  Although the project seemed to be a success by all standards, with all condo units and parking spaces being leased or sold and both parties (and the main real estate broker) making a … Continue reading

More Problems Arise for Upper Crust

Upper Crust Pizza

It’s no secret that locally based pizza chain Upper Crust has recently been under scrutiny over its labor practices; illegally employing undocumented workers from Brazil, underpaying them for long workweeks and rescinding overtime pay ordered by the U.S. Department of Labor for weekend work.  Five former employees have a suit pending against the company for these practices.  In fact, the court recently certified the class in that lawsuit. As it turns out though, Upper Crust’s problems don’t end there. In dueling pleadings filed in Suffolk Superior Court, the co-owners of Upper Crust are now suing each other alleging misuse of … Continue reading