Back view of businessman with umbrella looking at city

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    • A business divorce is the process by which the owners of a business separate their business interests.  The process involves negotiation and may also require litigation.

    • These cases can be divided into four phases: the emergent phase, the examination phase, the valuation phase and the resolution phase.

    • Most owner lawsuits end in a negotiated transaction because it gives the parties more flexibility over the manner in which the case is resolved.

We’re going to look at business divorce in terms of the four phases that the typical case goes through from its start to the time that is resolved, either through settlement or trial.We should start with the most basic definition of what is a business divorce. I use the term to describe the process by which people who were in a business together disentangle themselves. Continue reading

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  • Limited liability company statutes often require the unanimous approval of the members before actions may be taken outside the ordinary course of business or for any amendment of the Operating Agreement.

  • The requirement for unanimous action creates a minority veto – any member can veto the actions of the majority – often leading to deadlock.

  • States that have adopted the Uniform Limited Liability Company Act, including New Jersey, Pennsylvania and Connecticiut, require unanimous actions.  Other states, including Delaware and New York, permit major actions to be taken by simple majority vote.

These days we’re seeing a  political world in which we have a national politics that is very, very closely divided, and one or two people have tremendous control over the rest of the country.  It’s not just the Congress, but over everyone. And they’re basically, even though they only have one vote, they’re able to stop things, able to derail a process. They have a minority veto. Continue reading

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  • An arbitration award entered in a dispute between two parties over the alleged issuance of shares in a financing transaction was vacated by a court because of the arbitrator’s failure to issue the written award on time.

Cases-of-Note-CorporationsIn the Matter of the Application to Confirm an Arbitration Award of Theodore Papakonstadinou and AKTOR CORPORATION, Petitioners, against Nikolaos Sparakis, LIZBETH GOZZER and GOZZER CORPORATION, Respondents. 

Petitioner Theodore Papakonstadinou is a director and owner of 95% of the voting shares of respondent Gozzer Corporation (“Gozzer Corp.” or “Corporation”), a domestic corporation with its principal place of business at 1043 Broadway, Albany, New York. The remaining 5% of the shares are owned by respondent Lizbeth Gozzer (“Gozzer”).

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  • In a business divorce case alleging the fraudulent acquisition of shares, once the defendant  established the existence of a release, plaintiff must prove it is invalid.

  • A claim of a fiduciary relationship does not relieve plaintiff of proving that he did not release a claim that he was the victim of fraud in the purchase of shares of a closely held business.

Cases-of-Note-CorporationsNilish Chadha, Individually, and Derivatively on Behalf of Wahed Inc. f/k/a Wahed Invest Inc., Plaintiff, against Junaid Wahedna, and Wahed Inc. f/k/a Wahed Invest Inc., Defendants.

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  • In a dispute among general partners, a single verbal threat against spouse of one of the partners does not create a claim for intentional infliction of emotional distress.

CHERYL E. CHAMBERS, J.P. SYLVIA O. HINDS-RADIX COLLEEN D. DUFFY ANGELA G. IANNACCI, JJ.

In August 2007, the plaintiff and the defendant allegedly entered into an oral agreement establishing a general partnership to own, manage, andCases-of-Note-Partnerships-1024x536 maintain real estate and, in [*2]furtherance of that agreement, jointly held title to two properties in Port Chester.

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An ordinary contract, even between close friends, does not create a fiduciary relationship from which a court will find an equity interest.

Dominic Thomas Karipaparambil, Plaintiff-Appellant, v Robert Michael Polus et al., Defendants-Respondents. Judgment, Supreme Court, New York County (Jennifer G. Schecter, J.), entered March 10, 2021, dismissing the complaint, unanimously affirmed, without costs.
Appeal from order, same court and Justice, entered on or about March 2, 2021, which granted defendants’ motion to dismiss the complaint alleging causes of action for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
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  • An agreement prohibiting a former associate of a law firm from competing with his former employer within 90 miles of New York City was void and unenforceable.

  • Solicitation of the clients of a law firm by a former associate may be actionable, even if a potential restriction on practice, in limited circumstances.

  • The rule of professional conduct that precludes restrictions on practice will not bar a claim against a former non-lawyer employee.

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  • A former employee will violate the computer fraud and abuse act only by having unauthorized access to data, not by using data for an unauthorized purpose.

  • Former owners or employees that access computer systems after termination may be liable under the Computer Fraud and Abuse Act.

  • A federal claim based on the unauthorized use of data will likely no longer support a federal claim in a business divorce litigation.

So much impact from such a little word.  The U.S. Supreme Court, resolving a split among the circuit courts, imposed significant limits on the reach of the Computer Fraud and Abuse Act (CFAA), severely restricting its usefulness as a tool to pursue unfaithful former employees and owners.cyberspace-2784907_1920-1024x683

The significance of the decision– which as discussed below turned on the construction of the work “so” in the statute’s definitions – in business divorce cases is that it will limit the ability of litigants to employ the statute as redress for some types of conduct and deprive a plaintiff in some cases of access to federal courts.  (For the linquists and grammarians, the parsing of “so” is in the opinion, here.) Continue reading

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  • A charging lien protects the interest of a lawyer in fee that is to be paid from a contingent-fee recovery.  A statutory lien may be enforced through a petition filed in an underlying action.

  • The amount of a charging lien, and the lawyer’s compensation, is determined using principles of quantum meruit, or “so much as he deserves.  Quantum meruit creates an implied contract to pay an amount based on the contribution of the former lawyer to the ultimate result.

  • A charging lien claim is subject to the general requirements for trial by jury.  Once a jury trial is demanded by either party, it can be waived only with consent.  Whether a party is entitled to trial by jury depends on whether a jury trial is available in the underlying action.

New Jersey’s attorney charging lien statute (N.J.S.A. 2A:13-5) permits a discharged attorney to file a lien petition in a matter makes clear that the trial court has the authority, in the first instance, to establish and enforce the charging lien, but it is silent on the issue of whether a jury trial is required to determine the ultimate outcome.jury-box

When is a Charing Lien Subject to Trial by Jury?

That question – jury trial or not – is likely to turn on where the case was pending at the time the lien was asserted, according to a decision of the Appellate Division of Superior Court in Toscano Law Firm v. Haroldson (opinion here).  The appellate reversed the trial court’s decision in a long-running fee dispute, made without a jury, and remanded the dispute for a new trial.

Thus, although discharged attorneys in  contingent-fee matters are generally compensated under principles of quantum meruit, an implied contractual theory that is equitable in nature, the parties may have a right to trial by jury.  In the Toscano, litigation, the Appellate Division held, the trial court had confused the equitable nature of a quantum meruit claim with the fact that it is a legal remedy.  (The quantum meruit claim is one that results in money damages payable to the successful charging lien petitioner.) Continue reading

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Independent Contractor, or Not …

Divining the difference between the traditional employee and an independent contractor has an inherent level of uncertainty, particularly in this era of gig workers and home offices brought about by the Covid pandemic.

Shortly before the end of the Trump administation, the Department of Labor had announced a new standard under the Fair Labor Standards Act (“FLSA”) that was focused on a pair of core factors — worker control and opportunity for profit.  The Biden administration has reversed course, however, and the Department of Labor has withdrawn the rule change.

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Jay R. McDaniel, Esq.
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Weiner Law Group LLP
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