Business Divorce Part IV:

Litigating a Business Divorce

Anyone with significant training in self-defense or martial arts will tell you that fighting should always be your last resort.

Fights are messy, unpredictable and costly. Training doesn’t always guarantee a win, and while you may think you have the upper hand, you never fully understand what weapons your opponent will bring to the table.

The same is true with litigation.

An experienced litigator will only resort to litigation when absolutely necessary. In the context of a business divorce, this may be due to matters that require immediate court intervention, or because all other options have been exhausted.

In Part IV of our series on business divorce, we take a look at what happens when all else fails and litigation becomes necessary to determine how business owners can go their separate ways.

You can check out the other articles in the series here.

Litigation Due to Exigent Circumstances.

What constitutes “exigent circumstances”? These are situations in which an owner engages in conduct — or threatens to engage in conduct — that is harmful to the business or another owner and is unlikely to be resolved without immediate court intervention. That conduct could include dissemination or improper use of trade secrets, intellectual property or other confidential information, or seizing corporate opportunities. In these cases, a business breakup may require immediate court intervention to maintain the status quo until the terms of that breakup can be sorted out. An owner may need to seek a temporary restraining order and/or preliminary injunction, both of which can prevent continued wrongful conduct while a case is litigated.

Litigation as a Last Resort.

There are a few ways the courts can step in to help when all else has failed.

When the dispute that gave rise to a business divorce cannot otherwise be resolved, you may need to pursue litigation. You can lean on the courts to determine claims of breach of contract, breach of fiduciary duty or other similar claims that must be resolved before the parties cut ties.

The courts can also be used to dissolve the business itself. This is considered the “nuclear option” for ending an unhealthy business relationship. Judges in North Carolina have broad discretion to resolve disputes through dissolution of a business:

  • Judicial dissolution is available when those in control of the business are deadlocked on an issue, and the business is suffering, or is likely to suffer, as a result.
  • Judicial dissolution is also available to a minority owner where it is reasonably necessary to protect that owner’s rights or interests. If a court determines dissolution would be appropriate, the business or its remaining owners have the option to purchase the complaining owner’s interest at “fair value.” This is not the same as “fair market value,” and the courts have broad discretion in determining what “fair” means.
  • Judicial dissolution may also be outlined in the managing documents of the business. If so, the terms set forth in those documents determine when you can seek dissolution.

 

Litigation is an ever-present threat in any business divorce, and it’s wise to engage an experienced business litigator from the outset. An experienced litigator knows it’s typically best to keep a business divorce out of the courts. At the same time, he or she is prepared to provide the best possible legal assistance should litigation become unavoidable.

It’s just like those trained in self-defense: They are ready and willing to fight hard for your business — only if absolutely necessary.

For More Information Contact Lincoln Derr

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Business Divorce Part III: A Divorce Without Litigation

Business litigation takes a significant amount of time and money. In most instances, litigating a business divorce through a verdict at trial runs counter to a business’s profitability goals. However, there are notable exceptions in which a business will benefit from litigation during a business divorce.

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