Snell Legal, led by attorney Greg Snell, recently concluded representation of a client in a shareholder derivative action involving a family business. The family consists of a father, mother, son, and daughter, all born in China but who immigrated to the United States many years ago.
A Complex Family Business Dispute
Snell Legal became involved after a divorce case was commenced between the mother and father following decades of marriage. All the family members worked in the business, but the divorce and related circumstances resulted in the company ceasing operations.
The family business dispute resulted from the divorce and family members contesting ownership conveyance. The daughter thought the business's assets were being wrongfully taken by her father and brother and used for a business of the same type, looking very much like the family business. She said she was a 50% owner of the business, along with the father. At the same time, the father contended that he had put up the money for the business and was the 100% owner. The father and son denied wrongdoing.
Strategies for Establishing Business Ownership
The daughter came to Snell Legal to try to prevent the business assets from being taken without proper compensation to her and her mother. Snell Legal worked cooperatively in support of divorce counsel for the mother and brought a derivative action against the father and son, asserting claims of breach of oral contract, breach of fiduciary duty, conversion, theft of trade secrets, and conspiracy. An owner must bring a derivative action on behalf of the company. If the daughter couldn’t prove she was an owner, she couldn’t bring the case.
Snell Legal was able to introduce documents related to the original purchase of assets for the business and tax documents, along with testimony of the daughter, to demonstrate that, contrary to the father’s contentions, she was an owner. Snell Legal prevailed on this threshold issue at trial and was able to proceed with the claims on behalf of the business.
Snell Legal employed various legal strategies to address issues of stolen business assets. The firm used forensic accounting and computer experts to prove the value of the assets, the profits made by the brother’s company that should have belonged to the family business, and how and when trade secrets were stolen from the business computers.
In addition, employees of the brother’s company, who had also worked for the family business, provided testimony that confirmed that assets were stolen and there was no distinguishable difference between the family business and the brother’s business. Basically, the brother, with the father’s assistance, stole whatever they found of value from the family business and carried on the new business as if it was the family business.
The Financial Fallout of Family Discord
The financial impact of the family business dispute amid the divorce was significant. Judgment for damages was entered against the father for $2,272,677. Judgment was entered against the brother, and his company, for $1,222,302. In addition, a judgment for prejudgment interest for $633,849.73 was entered against the father and $340,900.09 against the brother and his company.
The judgments against the father, son, and the son’s business were joint and several to the extent of the lesser judgment. Thus, payment of the larger judgment amounts against the father would also satisfy the judgments against the brother and his business.
Claims for costs and fees were pending when the defendants took an appeal. On appeal, the judgments on the derivative action were completely upheld. The defendants then agreed to pay the damages, prejudgment interest, fees and costs, and post-judgment interest, for a total recovery of $3,002,547.16. A payment was made to the daughter for $1,741,173.19 for her 50% ownership in the business and for the attorney fees and costs incurred to bring suit on behalf of the company.
The business was valued at just over $1,400,000 on the date of filing of the divorce action. The father could have simply agreed to pay the daughter half of that amount as the 50% owner, i.e., $700,000. Then, he could have allowed the son to use the assets in the new business if he had wished. Instead, he paid his legal team to handle a trial and an appeal and then paid the daughter $1,741,173.19. A very costly mistake.
This case was complex and required a wide variety of skills, including experience with:
- Bringing derivative actions
- Pursuing business damage claims
- Proving business valuation and the theft of trade secrets through accounting and computer forensics experts
- Proving lost profits
- Working effectively with co-counsel, both at the trial and appellate court levels
Snell Legal has extensive experience in all these areas and frequently works with co-counsel.
If you need legal representation for business litigation matter in Daytona Beach, schedule a consultation by calling us at (386) 866-3033.