North Carolina Business Litigation Report

Being A Minority Shareholder Can Be Like Being In A Bad Marriage

Litigation between shareholders can be as unpleasant and messy as a divorce. That was the situation today in Koopman v. Koopman Dairies, Inc., a case which the North Carolina Business Court called a "corporate domestic dispute."

That analogy to family law led the Court to award attorneys' fees for the defendants' contempt of court orders. Ordinarily, fees aren't allowable in a contempt proceeding. Getting that type of award is as rare as, say, a 75th wedding anniversary.

In Koopman, two brothers and their wives each owned 50% of a family dairy farm. They squared off in a lawsuit seeking dissolution. During the course of the lawsuit, the defendants made a habit of taking funds out of the corporate account without the consent of the plaintiffs. The Business Court responded by ordering that neither party could remove funds except in the ordinary course of business.

The defendants violated that order, other directives of the Court, and a settlement agreement regarding the permissible use of corporate funds. You can read the opinion if you want the detail, but Judge Tennille summarized that the defendants "have routinely and repeatedly resorted to self-help when it suited their purposes and deliberately and without justification violated clear and direct orders of this Court. In doing so they also breached the settlement agreement they had reached. Their conduct has been willful and intended to harm [the plaintiff's] business."

The Court held the defendants in contempt. The plaintiffs requested the attorneys' fees they incurred in obtaining that ruling. Judge Tennille observed the "general rule" that "its inherent authority to issue sanctions for failure to obey its orders does not include an award of attorney fees." Op. ¶14.

Nevertheless, the Court awarded fees, relying on Hartsell v. Hartsell, 99 N.C. App. 380, 393 S.E.2d 570 (1990), a domestic case in which the Court of Appeals awarded fees for a party's failure to comply with an equitable distribution award. 

Judge Tennille held "[t]his is a corporate domestic dispute in which the parties had agreed to an equitable distribution of the assets of the company. The rationale for awarding attorney fees under both circumstances is the same. If the parties can choose to ignore court orders and treat the assets at issue in any manner they choose, the system does not work. Parties could simply choose to comply with a court order on distribution in any way they saw fit, leaving the court and their adversary with no remedy." Op. ¶15.

 

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Mack Sperling
Brooks Pierce, LLP
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