Corporate, Partnership, and Derivative Litigation Ohio

Running a business together with other owners is often compared to being in a marriage. Sometimes the joint owners can no longer work together and there is a break up. Litigation often ensues when these breakups happen, particularly when the company lacks sufficient governing documents, such as regulations for a corporation or an operating agreement for a limited liability company. In such situations, it may be time to consult a Columbus partnership litigation attorney.

Other times, one of the joint owners, or folks in key management positions, such as directors and officers, engage in unauthorized acts, such as taking money without authorization, making conflicted deals with other entities, or engaging in a competing business. Generally speaking, owners, board members, and officers have fiduciary obligations to the company. Engaging in any of the aforementioned unauthorized activities can lead to derivative litigation—litigation brought by the company against the people who have violated their fiduciary duties.

In the context of large publicly traded companies, derivative suits are usually brought by the shareholders on behalf of the corporation against some or all of its management, including board members and key officers such as the president of the corporation. One of the most famous examples of a derivative suit is a 2005 case in which the shareholders of Disney brought a suit, on behalf of Disney, against its board of directors. The suit alleged that the board of directors violated their fiduciary duties and committed waste by allowing the company’s president, Michael Ovitz, to collect approximately $140 million upon his exit from the company. It should be noted that Ovitz only served as president for a little over a year and was hired mainly because he was a good friend of Disney’s then Chairman, Michael Eisner.

Most derivative suits occur on a much smaller scale but follow the same principles. For instance, in a 2002 suit, Ohio’s Tenth District Court of Appeals allowed one of two shareholders of Stonebridge Corp. to bring a derivative suit on behalf of the company against the only other shareholder. Stonebridge Corp. consisted of only two shareholders, PD&D and HER. Shareholder HER alleged that PD&D and its sole owner, Mr. Paranteau, violated their fiduciary duties to Stonebridge Corp. Mainly, HER alleged that a violation of the duty of loyalty occurred, arising out of Stonebridge contracting with other entities owned by Mr. Paranteau.[1] Although such conflicted deals are not necessarily prohibited, it is easy to see how a person with ownership in two separate entities can artificially increase the price of a transaction to benefit one company over the other.

Depending on the nature of the company, derivative litigation can come in many forms, but the principles usually remain the same. If you are experiencing problems in your jointly owned company, it is never too early to consult with a competent Columbus corporate derivative litigation attorney. Whether you are simply at your breaking point and want out or you believe other owners have engaged in unscrupulous conduct, our Columbus shareholder derivative litigation attorney can review your company’s governing documents and can advise as to an appropriate remedy for your individual situation.

[1] See HER, Inc. v. Parenteau, 2002-Ohio-577, 147 Ohio App. 3d 285, 770 N.E.2d 105.

 


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