MacDonald Illig successfully represented 30 individuals in both state and federal court and received approx. $9 million dollars in wrongfully diverted dividends and share value.
Highlights
MacDonald Illig successfully represented a group of 30 shareholders who, collectively, owned approximately 25% of a large manufacturing concern in Pennsylvania. The company was controlled by two shareholders who owned 75% of the stock.
After several years of litigation in both state and federal court, a settlement was reached with the majority shareholders whereby MacDonald Illig's clients received approximately $9 million dollars in wrongfully diverted dividends and share value.
Background
MacDonald Illig's representation of the plaintiffs began with one minority shareholder asking the firm to review corporate records relating to the operations of the company. A statutory demand for records was made. The initial review revealed "related party transactions" that raised concern about possible diversion of profits by majority shareholders. Further investigation revealed the existence of a collateral enterprise owned by majority shareholders to which the company was making payments. Thereafter, MacDonald Illig was retained by 30 individuals, representing 25% of the ownership of the company, who filed cases in both state and federal court, pursuing claims of breach of fiduciary duty and minority shareholder oppression.
The majority owners of the company were two individuals who owned approximately 75% of the outstanding shares and who vigorously defended the litigation in all forums.
The majority owners initially argued that the minority shareholders had no standing to proceed with the litigation as the claims being asserted were essentially derivative in nature and not in the best interests of the company. Strategically navigating the procedures set forth in Pennsylvania case law and the ALI Principles of Corporate Governance, MacDonald Illig succeeded in convincing the court to appoint an independent panel to make a decision as to whether the claims were in the best interest of the company. Thereafter, MacDonald Illig was successful in persuading this independent panel that the litigation should proceed.
Next, the majority shareholders attempted to "squeeze out" the minority by engaging in a "reverse stock split," a tactic that would have resulted in all minority shareholders being eliminated as owners and receiving only the value of shares as determined under their "dissenter right." Such an outcome would not have allowed the minority shareholders to recapture the lost value of their shares caused by years of misconduct by the majority shareholders. MacDonald Illig swiftly secured a preliminary injunction against the squeeze out, and at a subsequent evidentiary hearing, was able to clearly demonstrate to the court the injustice of allowing the reverse stock split to occur. The injunction remained in place.
Finally, after successfully defending a Motion for Summary Judgment and pushing the case toward trial, MacDonald Illig's litigators successfully negotiated a two-part settlement by which the minority shareholders were first compensated for lost dividends and share value, and would then be bought out at a price established by an independent appraiser. MacDonald Illig counsel had extensive involvement with the independent appraisal process itself, which required extensive advocacy and use of experts. Ultimately, the independent appraiser set a current value for the minority shareholders' stock which was highly favorable.
This case highlights the business acumen and litigation talent of the MacDonald Illig Commercial Litigation Group. In a complex case involving shareholder rights, fiduciary duty, accounting, business practices, business valuation and unrelenting advocacy, MacDonald Illig had the depth and experience needed, and its clients prevailed.