Shareholder Disputes and Shareholder Rights

Minority Shareholder & Investor Disputes

Minority Shareholders, Investors and Founders have far more rights than they realize. State statutes and common law protect minority shareholders and investors against oppression, self-dealing, waste, and other misconduct by majority shareholders, officers, and directors. When controlling shareholders, officers or directors squeeze out a minority owner, divert company assets, or withholds distributions, the law provides strong remedies including damages, a court-ordered buyout at fair value, an unwinding of improper transactions, or dissolution. We regularly represent minority shareholders who assumed they had no recourse until they spoke with counsel.
 

Fair Value & Appraisal Rights

Shareholders and Investors have strong remedies when a merger, acquisition, or take-private transaction cashes them out at an unfair price.  You can exercise Appraisal Rights to opt out of an unfair deal and instead have a court determine the fair value of their investment, plus interest.  You can also seek damages when a merger, acquisition, or similar transaction forces you out at an unfair price or in a deal where the majority shareholder, officers or directors have conflicts or benefit at your expense.  We have helped investors recover millions of dollars above the deal price, including a $57.7 million recovery in a Delaware appraisal action.
 

Shareholder and Founder Disputes

Shareholder and Founder disputes can take many forms: Disputes between Founders; disputes between majority and minority shareholders; unfair squeeze-outs or buy-outs; deadlock between owners, breaches of fiduciary duty, corporate governance and control disputes; and claims arising from self-dealing or mismanagement. We handle direct claims on behalf of individual shareholders or founders, shareholder class actions challenging unfair transactions, and derivative actions brought on behalf of the company.
 

Representative Matters

• Manichaean Capital, LLC v. SourceHov Holdings, Inc., 2020 WL 496606 (Del. Ch.). Won $57.7 million Appraisal Rights trial victory for investors challenging the fair value of a controlling stockholder deal.  Won a substantial premium over deal price, and valuation 25 times higher than trading price at time of judgment.  

• Fasano v. Li et al., AAA No. 01-22-0003-8385/47 F.4th 91 (2d. Cir.):   Won $21 Million Settlement for class of minority shareholders unfair going-private transaction of leading Chinese e-commerce company.  Gross settlement value was roughly 20% higher than merger price.  

• Jolly v. Crypto Lotus LLC et al.:   Won complete defense victory in $35 million Founder’s Dispute against a Digital Assets hedge fund and the Founder of a high-profile Cryptocurrency that had drawn investments from Binance Labs, General Catalyst, and Coinbase Ventures.   

• SkyBridge Capital II LLC v. Premium Point, et al., Index No. 653172/2018 (N.Y. Sup.)  Won $26 million for investor in Mortgage-Backed Securities Hedge Fund arising out of Fund’s fraudulent inducement of investments by using artificially inflates prices for the bonds and RMBS securities in its portfolio.

• In re Orchard Enterprises, Inc. Stockholder Litig., 88 A.3d 1 (Del. Ch. 2014):  Won $12.1 million for investors challenging unfair going-private transaction at an unfair price, as lead counsel in Appraisal Rights trial victory and related fiduciary duties class action that won partial summary judgment.   Obtained a gross settlement value that was almost three times the value of the merger price.

Contingency & Hybrid Fees

We regularly handle Shareholder Disputes, Investor Disputes and Founder Disputes on a full contingency basis, or on a hybrid hourly and success fee basis. If you would like to discuss your matter free of charge, please contact our Shareholder Disputes attorneys.
 

FAQs: Shareholder Disputes and Founder Disputes

 

What rights do minority shareholders have?

Minority shareholders have rights under common law and state statutes, including rights against Mergers or Squeeze-Out transactions at unfair prices; the right to inspect company books and records; the right to be treated by officers & directors with loyalty, good faith, and care; and in many cases, to seek a buyout or dissolution. Many of these rights cannot be waived, even by agreement.
 

What are Appraisal Rights?

Appraisal rights allow a shareholder to opt out of a Merger, Acquisition or similar transaction, and instead petition a court to award the shareholder the fair value of his or her shares instead of the deal price. If the court finds the shares were undervalued, the shareholder may recover the difference, plus interest.
 

What is Fair Value?

In an Appraisal Rights or Shareholder Dispute alleging a breach of fiduciary duties, Fair Value is the shareholder or investor’s share of the value of the Company as a Going Concern, assuming that it continues to operate and produce cash flow into the future.   Fair Value is determined by looking at all indications of value, but usually turns on a determination of what value a third-party would pay in an arm’s length transaction.   Where a Transaction involves a Director, Officer or Controlling Stockholder with a conflict of interest, the value is often determined using a Discounted Cash Flow analysis of the Company. 
 

When can a shareholder sue for Fair Value or oppression?

A shareholder may have an oppression claim when a controlling shareholder or the board acts to defeat the a minority owner or shareholder’s rights, for example by freezing or squeezing them out, withholding distributions, or diverting company opportunities. Remedies can include damages, a buyout, or other relief.
 

My Co-Founder is Trying to Throw Me Out, What do I do?

It is critical that you contact a lawyer immediately if you get into a dispute with a Founder or Co-Owner.  You need to immediately examine all corporate documents to determine what happens if the other Founder or Owner tries to throw you out, withhold distributions, fire you, or take Company assets.  We can speak with you immediately for an initial no-cost assessment, to determine your rights, your risks, and the best fee structure. 
 

What is a Derivative action?

A Derivative action is a claim brought by a shareholder or investor on behalf of the company to recover for harm caused to the Company by directors, officers, or controlling shareholders, such as breach of fiduciary duty or self-dealing. Any recovery generally goes to the company rather than to the individual shareholder.  A Derivative action is usually brought when the harm is caused to the Company rather than the individual in particular.