Articles Posted in Shareholder Oppression

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The duty of oversight, often referred to within the context of corporate governance, is a critical aspect of the responsibilities of a corporation’s board of directors. This duty is essentially the requirement that board members are attentive to and oversee the business and affairs of the corporation, including its compliance with the law and its risk management processes. The duty of oversight is a component of the fiduciary duties that directors owe to the corporation and its shareholders.

The case In re McDonald’s Corp. S’holder Deriv. Litig., 2023 WL 387292, C.A. No. 2021-0324-JTL, at *1, *9 (Del. Ch. Jan. 26, 2023) is centered around allegations that the McDonald’s directors overlooked signs of a corporate culture permitting sexual harassment and misconduct from 2015 to 2020. The plaintiffs, who are shareholders, contend that this resulted in harm to the company due to subsequent employee lawsuits, loss of employee trust, and a damaged reputation. Nine directors who served during this period were named as defendants.

David Fairhurst, who served as Executive Vice President and Global Chief People Officer of McDonald’s from 2015 until his termination in 2019, was among the defendants. The plaintiffs argued that Fairhurst, as a fiduciary, was aware of potential issues with sexual harassment and misconduct in the company. They claimed that under his leadership, a culture of sexual misconduct and harassment was allowed to develop, leading to coordinated Equal Employment Opportunity Commission (EEOC) complaints, a 30-city walkout, and a second round of coordinated EEOC complaints, followed by a second one-day strike in 10 cities.

To fully grasp how this case has impacted Delaware Law concerning the duty of oversight, it is essential to understand the concept of a Caremark claim. This type of “failure of oversight” theory is observed to be one of the most challenging theories in corporation law upon which a plaintiff might hope to win a judgment. Under Delaware law, plaintiffs must plead with particularity that there were so-called ‘red flags’ that put the directors on notice of problems with their systems, but which were consciously disregarded. Continue reading ›

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Illinois is home to a vibrant business landscape, with partnerships being a popular choice for entrepreneurs and professionals seeking to collaborate. However, like any business relationship, disputes can arise in partnerships. When facing a partnership dispute in Illinois, having the right legal representation is crucial. In this blog post, we’ll explore the best lawyers to handle Illinois partnership disputes, guiding you toward skilled professionals who can help you navigate these complex legal waters.

  1. Business Litigation Experience: When dealing with a partnership dispute, you want a lawyer with extensive experience in business litigation. Look for attorneys who concentrate in resolving complex business disputes, including those related to partnerships. They should have a deep understanding of Illinois business laws, contract law, and the intricacies of partnership agreements.
  2. The ADR Alternative: Alternative dispute resolution (ADR) methods, such as mediation and arbitration, can be effective ways to resolve partnership disputes without going to court. Seek out lawyers who are well-versed in ADR processes and can guide you through negotiation and settlement discussions.
  3. The Experienced Negotiator:Effective negotiation is often the key to resolving partnership disputes amicably. Lawyers skilled in negotiation techniques can help you reach favorable settlements, saving time and money in the long run.
  4. The Seasoned Corporate Attorney:Many partnership disputes involve complex corporate structures and governance issues. Lawyers with a background in corporate law can provide valuable insights into the intricacies of partnership agreements and the rights and responsibilities of partners.
  5. The Local Legal Expert: Partner with attorneys who have a deep understanding of Illinois state laws and regulations, as well as familiarity with local court procedures. Local knowledge can be invaluable when navigating the Illinois legal system.
  6. The Collaborative Problem Solver:A lawyer who encourages collaboration and teamwork can often help facilitate smoother resolution processes. Look for professionals who prioritize finding solutions that benefit all parties involved.
  7. The Seasoned Litigator: In some cases, litigation becomes unavoidable. Lawyers with strong litigation skills can represent your interests effectively in court, advocating for your position and protecting your rights.
  8. The Reputation Matters: Investigate lawyers’ reputations within the legal community. Seek referrals or read reviews and testimonials to gain insights into their track record of successfully handling partnership disputes.
  9. The Client-Centered Advocate: Choose attorneys who prioritize your needs and concerns. Effective communication and a client-centered approach can make the legal process more manageable during the stress of a partnership dispute.
  10. The Problem-Solving Team: In complex partnership disputes, assembling a legal team with diverse skills and areas of expertise can be advantageous. Your lawyers should collaborate seamlessly to address all aspects of your case.

Navigating partnership disputes in Illinois demands legal expertise, negotiation skills, and a deep understanding of state laws and regulations. The best lawyers to handle these disputes are those who combine these qualities and prioritize finding effective, efficient, and mutually beneficial resolutions. With the right legal team by your side, you can protect your interests and work towards a favorable outcome in your Illinois partnership dispute. Continue reading ›

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Shareholder derivative lawsuits can be particularly impactful for closely held companies in Illinois. These lawsuits provide an avenue for shareholders to address wrongdoing by officers, directors, or majority shareholders, and to protect the company’s best interests. In this blog post, we’ll explore the best way to prosecute a shareholder derivative lawsuit for a closely held Illinois company, considering the unique dynamics of such entities.
  1. Understand the Closely Held Company Dynamics:Closely held companies typically have a limited number of shareholders, and often, those shareholders are actively involved in the company’s management. Understanding the close-knit nature of these businesses is essential when prosecuting a derivative lawsuit. Recognize that personal relationships and conflicts of interest may play a significant role.
  2. Engage Experienced Local Counsel:Given the specific nuances of Illinois corporate law and the potential complexities of closely held companies, it is crucial to engage experienced local counsel. Seek attorneys with a track record in closely held corporate litigation, who understand the intricacies of Illinois business statutes and court procedures.
  3. Preserve Evidence and Documents:As with any derivative lawsuit, preserving evidence and relevant documents is paramount. Ensure that you have access to all necessary corporate records and financial documents that may support your claims.
  4. Evaluate Your Standing:Verify that you have standing to bring a derivative lawsuit as a shareholder of the closely held company. This may involve confirming that you were a shareholder at the time of the alleged wrongdoing and that you have maintained your shares throughout the legal process.
  5. Thoroughly Investigate the Allegations:Conduct a thorough investigation into the allegations of wrongdoing within the company. It’s essential to gather evidence and build a strong case that demonstrates how the misconduct has harmed the company and its shareholders.
  6. Attempt Resolution Through Negotiation or Mediation:Given the close relationships in closely held companies, it may be worthwhile to explore options for resolution through negotiation or mediation before proceeding with litigation. Engaging in discussions with the parties involved may lead to an amicable solution that benefits all stakeholders.
  7. Draft a Well-Pleaded Complaint:Create a well-pleaded complaint that clearly outlines the allegations, the harm suffered by the company, and the legal basis for your claims. A well-drafted complaint is crucial to moving the case forward.
  8. Consider the Impact on Company Operations:Recognize that a shareholder derivative lawsuit can disrupt business operations and relationships within a closely held company. Weigh the potential benefits of the lawsuit against its impact on the company’s ability to function effectively.
  9. Stay Committed and Persistent:Legal proceedings for closely held companies may be emotionally charged and protracted. Stay committed to the process, work closely with your legal counsel, and be prepared for potential challenges.
  10. Protect the Interests of Minority Shareholders:If you are a minority shareholder, emphasize the importance of protecting the interests of minority shareholders during the litigation process. Ensure that any potential settlements or resolutions are equitable to all shareholders.

Prosecuting a shareholder derivative lawsuit for a closely held Illinois company requires a thorough understanding of the unique dynamics and challenges that these businesses present. By following the steps outlined above and working closely with experienced local counsel, you can navigate the complexities of closely held corporate litigation and strive to protect the best interests of the company and its shareholders.

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Limited Liability Companies (LLCs) have become a popular choice for business owners due to their flexibility and liability protection. However, in the realm of LLCs, disputes among members can arise, leading to conflicts and, in some cases, member oppression. In the state of Illinois, LLC member oppression is a serious issue that demands attention and understanding to navigate legal complexities and seek appropriate remedies.

Understanding LLC Member Oppression: LLC member oppression refers to situations where the majority members of an LLC engage in conduct that unfairly prejudices the rights or interests of minority members. These oppressive actions can take various forms, such as excluding minority members from decision-making, withholding crucial information, mismanagement of company affairs, or diverting opportunities that could benefit the LLC.

In Illinois, LLCs are governed by the Illinois Limited Liability Company Act (805 ILCS 180). This act provides a legal framework outlining the rights and responsibilities of LLC members and offers avenues for minority members who face oppression within the company.

Rights of LLC Members in Illinois: Under Illinois law, LLC members possess certain rights, including the right to access company records, participate in management decisions (unless otherwise specified in the operating agreement), and the right to fair treatment without discrimination or oppression. However, these rights can sometimes be compromised when majority members wield their power to the detriment of minority stakeholders. Continue reading ›

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Document requests are a critical component of the discovery process in legal proceedings, enabling parties to obtain essential evidence and information to support their cases. The case of Elleby v. Forest Alarm Service, Inc., 2020 IL App (1st) 191597, offers valuable insights into the requirements and intricacies of document requests in Illinois. In this blog post, we will delve into the Elleby case and explore the key elements and considerations involved in making effective document requests. Continue reading ›

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Shareholder and LLC member disputes can be complex and contentious, especially when one party attempts a “freeze-out.” A freeze-out refers to excluding a shareholder or member from the decision-making process or the benefits of ownership. In Illinois, recent court decisions have shed light on the legal principles surrounding these disputes. In this blog post, we will explore some of these notable cases and the lessons they offer for those facing or involved in freeze-out situations.v

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It’s commonly said that you have to spend money to make money, but taken too far, that philosophy can easily bankrupt a company. When that company has investors and shareholders whose money you’re spending so you can try to make money, you have to justify your expenses to those shareholders. You have a responsibility to spend their money wisely so they can expect a good return on their investment.

According to a series of lawsuits filed against Madison Square Garden Entertainment Corp., the company allegedly made a series of moves the shareholders considered to be in violation of the company’s fiduciary duty.

One such move was the decision made by MSG Network’s board of directors and controlling stockholders to merge with MSG Entertainment. The reason given for the move was to save costs, but the minority shareholders allege the move was not made with their best interests in mind. Continue reading ›

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Yes, it is possible to sue a lawyer in a shareholder derivative action in certain jurisdictions including Illinois. A shareholder derivative action is a lawsuit brought by a shareholder on behalf of a corporation against a third party. The lawsuit is typically brought when the corporation has been harmed by the actions of a third party, but the corporation’s management has failed to take action.

In a shareholder derivative action, the shareholder acts as a representative of the corporation and brings the lawsuit on the corporation’s behalf. If the shareholder is successful in the lawsuit, any damages or remedies awarded go to the corporation, not to the individual shareholder.

In some cases, the corporation’s harm may be caused by the actions of the corporation’s own lawyers. For example, if a lawyer provides negligent or inadequate legal advice to the corporation, causing the corporation to suffer damages, the corporation’s shareholders may be able to bring a shareholder derivative action against the lawyer on behalf of the corporation.

In order to bring a successful shareholder derivative action against a lawyer, the shareholders must be able to show that the lawyer breached their duty of care to the corporation and that this breach caused harm to the corporation. The shareholders must also show that they have exhausted all other available remedies, such as asking the corporation’s management to take action against the lawyer.

In conclusion, it is possible to sue a lawyer in a shareholder derivative action if the lawyer’s actions have harmed the corporation. However, such lawsuits can be complex and challenging, and it is important to seek the advice of a qualified attorney before pursuing this type of legal action. Continue reading ›

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In a recent 11th Circuit Court of Appeals decision, Warrington v. Rocky Patel Premium Cigars, Inc., No. 22-12575, 2023 WL 1818920 (11th Cir. Feb. 8, 2023), the court provided valuable lessons for partners, shareholders, and small business owners who may find themselves in disputes. This case serves as a cautionary tale, highlighting the importance of careful strategy and legal counsel when pursuing litigation or arbitration.

The dispute centered on Brad Warrington, a minority shareholder in Rocky Patel Premium Cigars, who wanted to divest from his holdings in the company. The buy-sell agreement between Warrington and Rakesh Patel, the majority shareholder, included an arbitration provision for any disputes arising out of the agreement. However, the case demonstrates how mistakes made during litigation can result in a waiver of the right to arbitration.

After years of disagreement over the value of Warrington’s shares and alleged improprieties by Patel, Warrington found a private buyer and notified Patel of his intention to sell. Patel refused to acknowledge the notice and subsequently sued Warrington in Florida state court, seeking a declaratory judgment and alleging breach of contract, among other claims.

While the state action was pending, Warrington sued Patel in federal court, bringing several counts, including breach of contract and breach of fiduciary duty. Patel moved to dismiss, remand, or stay the federal action, but the district court denied his motion. It wasn’t until June 2022 that Patel moved to stay and compel arbitration under the agreement. However, the district court denied this motion, finding that Patel had waived his right to arbitrate by initially filing in state court and moving to dismiss or remand Warrington’s federal action. Continue reading ›

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We’ve all heard stories of the plucky entrepreneur who started a game-changing business and managed to sell it for millions of dollars. It’s a great rags-to-riches story, and it proves the American Dream is real. But what if the business is fake?

Charlie Javice was one of those young entrepreneurs. The company she started was called Frank, and the idea was to simplify the financial aid process for college students. When JP Morgan bought the company from Javice in 2021, it was valued at $175 million, and Javice was made managing director for student solutions. Now JP Morgan is suing her for allegedly exaggerating the company’s value … by a lot.

College students are a goldmine for banks. Almost all college students need to take out a loan in order to pay for their higher education, loans they spend decades paying off while the banks collect interest.

A lot of college students are also taking out credit cards for the first time, and most of them have not been taught how to use credit cards to their advantage. Instead, they’re more likely to end up in debt to the credit card companies.

According to court documents, when JP Morgan bought Frank, Javice allegedly told the bank’s executives that the company had more than 4 million users. The idea was that, by buying Frank, JP Morgan would gain access to a database containing the names and contact details of all those users who would no doubt be in need of financial assistance and a bank to provide its services. Continue reading ›

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