Confidential

Facts

Plaintiff was a non-active, 25 percent minority shareholder in a California corporation, which was in the business of manufacturing clothing labels. The business was being operated by plaintiff's brother and two long-time friends, who collectively owned 75 percent of the corporation.

PLAINTIFF'S CONTENTIONS:
Plaintiff contended that defendants had been engaged in wrongful conduct towards plaintiff in unreasonably increasing their compensation despite declining sales and net income of the corporation. He also claimed defendants diverted millions of dollars of cash of the corporation to overseas accounts while the corporation had been unable to meet its debts in the United States. Plaintiff claimed defendants received hundreds of thousands of dollars as cash advances without plaintiff's consent while the corporation was unable to pay its debt to third parties. Defendants also received cash distributions from the corporation without paying plaintiff's share of distribution, and made millions of dollars from suspect charitable contributions to religious individuals and/or organizations while the corporation was unable to meets its financial obligations.

Plaintiff also claimed that defendants reduced dividends owed to plaintiff without any legitimate reason, failed to maintain the accounts of the corporation in proper manner and therefore, exposed the corporation and/or plaintiff to tax liability. It also failed to deliver to plaintiff accurate accounting records of the business, paid unauthorized personal expenses with corporate funds, and misstated and/or misreported the income of the business of the corporation to plaintiff. Plaintiff further claimed that defendants improperly diverted the business of the corporation, and refused to communicate with plaintiff in regards to corporate decisions, operations, and finances. Plaintiff also claimed defendants converted assets and monies of the corporation to their personal use without plaintiff's consent and without following appropriate corporate formalities.

Plaintiff filed a complaint against defendants for breach of fiduciary duty, misappropriation, conversion, constructive fraud, accounting, unjust enrichment, constructive trust, appointment or receiver, injunctive relief, equitable expulsion from corporation and declaratory relief.

DEFENDANTS' CONTENTIONS:
Defendants denied plaintiff's contentions. Defendants also contended that after the corporation was formed, in or about mid-2001, plaintiff and defendants entered into an oral partnership agreement pursuant to which they would buy, develop, and sell real estate. They also agreed that plaintiff would run the day-to-day operations of the partnership, the partnership's profits and losses would be split equally among the partners, and each partner would make an initial capital contribution sufficient to enable the partnership to commence doing business. Plaintiff's salary for running the partnership would be equal in amount to the salary paid by the corporation to defendants. Defendants contended that plaintiff breached the partnership agreement by secretly usurping partnership opportunities for himself without defendants' knowledge or consent.

Defendants filed a cross-complaint against plaintiff for dissolution of the partnership and an accounting, and for breach of fiduciary duty for usurping partnership opportunities.

Plaintiff/cross-defendant denied those allegations.

Result

Plaintiff and defendants entered into a settlement agreement pursuant to which defendants agreed to purchase plaintiffs' interest in the corporation for $15 million. Both the complaint and cross-complaint were dismissed with prejudice.

Other Information

FILING DATE: Oct. 28, 2016.