As the old saying goes, "You can please
some of the people all of the time, all of the people some of the time, but not
all of the people all of the time." This certainly rings true for a
business with multiple owners, where there are often differing interests
between majority and minority owners, managing owners and investing-only
owners, and even family owners with differing views about how the business
should be operated.
The fights between real-life father and son,
Paul Teutul Sr. and Paul Teutul Jr. on the reality-TV show "American
Chopper" culminated in a legal showdown between the shareholders over a
written agreement about a buyout option.
Paul Sr. was the managing director, CEO and
majority shareholder of Orange County Choppers Holdings, Inc. (OCC), and Paul
Jr. was a director and 20% minority shareholder. After various disagreements
between the two, Paul Jr. was fired on-air in 2008, but he maintained his
minority stake.
Paul Sr. then sought to enforce the terms of
a written contract signed by both Paul Sr. and Paul Jr., which would have
compelled Paul Jr. to sell his minority stake in OCC, with a fair market
valuation that would be determined by a process agreed upon on by both parties.
Paul Jr. counterclaimed with allegations of breaches of fiduciary duties,
self-dealing and corporate waste, and the general mismanagement of OCC.
Paul Sr. won the first round of litigation,
where the court found that the option to purchase shares of OCCHI in the
contract was enforceable. However, this was reversed on appeal, where the
appellate court held that the option contained in the contract was not valid or
enforceable because the parties, in negotiating the option, failed to create a
complete and binding contract; their agreement only stated that the buyout
price would be determined "by a procedure to be agreed to by the parties
as soon as practicable."
Had there been a clearer provision in the
shareholders' agreement, litigation may have been avoidable. In addition to
structuring the correct legal mechanisms to protect, advisors should consider
the psychological element when dealing with competing interests among family
members. Full disclosure and the airing of all issues before signing a
contract, may have prevented the stockholders from becoming estranged and
hostile.
If you have any questions about the
information presented here, or would like to learn more about how Prince Lobel
can meet the needs of your closely
held business, please contact firm partners Patricia
M. Annino or Robert
P. Maloney. You can reach Patricia at 617 456 8009 or pannino@PrinceLobel.com, and Bob at 617 456
8008 or rmaloney@PrinceLobel.com.
