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Klein & Wilson Wins A Breach of Shareholder Agreement Jury Trial

On Behalf of | May 24, 2019 | Business Litigation

Klein & Wilson is pleased to report that following a $1,162,660 jury verdict in its client’s favor, the defendants settled the case by agreeing to pay Klein & Wilson‘s client $1,850,000.

The client formed an advertising agency with four previous colleagues (Defendants). The five shareholders signed a shareholder agreement giving the advertising agency an option to purchase the shares of a shareholder who resigned from the company. After the advertising company became a huge success, Klein & Wilson‘s client decided to retire and gave the company a resignation letter which included a request that the company buy his shares. The other shareholders met with corporate counsel and decided to exercise the option. They sent Klein & Wilson‘s client an email stating, “We accept your resignation letter.” Then, the company asked its CPA to determine the value of the client’s shares in accordance with the formula in the shareholder agreement. The CPA determined the company owed the client $1.1 million. The Defendants claimed shock at the number and tried to renege on their exercise of the option. Worse, with corporate counsel’s advice, Defendants stripped the client of his shareholder rights and converted all profit distributions to salaries and bonuses to themselves, leaving the client with nothing.

On April 4, 2019, a jury found the company liable for breach of contract. The jury found the individual defendants were the alter egos of the company because they siphoned away all profits and treated the company like a personal piggy bank. Recognizing they were going to get hit with costs, prejudgment interest and attorney’s fees, Defendants agreed to pay Klein & Wilson‘s client $1,850,000.

Klein & Wilson‘s lead trial lawyer, Mark Wilson said, “We were honored to represent a client who was badly treated by his former business partners. The Defendants profited from our client’s hard work and then stabbed him in the back. The jury saw through Defendants’ false claim they only accepted our client’s ‘resignation’ and did not agree to buy his shares. The jury’s alter ego finding was particularly satisfying as juries rarely hold owners liable for corporate debts.”