A jury tagged Alston & Bird yesterday with a legal malpractice verdict arising out of allegations that one of its partners failed to properly advise and protect a small, family-owned limited liability company, when its manager looted the business of nearly $1.5 million in excess compensation and overvalued shares in the company. The jury took only a few hours to reach a verdict, which, to trial attorneys, typically means the jury didn't have to think much about responsibility and went right to damages.
It’s not too often I get to blog about one of my favorite topics, limited liability litigation, in connection with a case involving a law firm. Typically, law partners want to keep their partnership disputes out of court, at least in Connecticut. But one case filed back in April involving a local law firm has heated up, and another was recently filed between the same parties.
Yes, of course you can, if he or she is doing some very bad things. You see, partners get into disputes all the time. Disagreements happen, whether they are between partners in a limited liability company, a true partnership, or shareholders in a closely-held corporation. And sometimes those disagreements are pretty serious, like when one partner steals money from the company. Or, maybe one of the partners starts a competing business and takes away the company’s customers. That kind of stuff gets serious, and is not the kind of behavior partners can (or should) turn their back on.
We've talked before about the new LLC Act in Connecticut (which goes into effect in July 2017) here and here. The new Act will have a provision allowing a member to seek a court order expelling another member from the LLC. It's a remedy that should help keep more limited liability companies alive rather than dissolved by court order. To expel a member, the plaintiff would have to show one of the following:
The Connecticut Supreme Court just held that a spouse who receives by assignment the other spouse's interests in an LLC, may not get much after all. You can read the case here. Once upon a time when I handled domestic relations cases, I knew that one of the assets that might be equitably divided was a spouse's interests in a limited liability company. The value received is really the right to receive distributions of the LLC's profits, because the spouse is not automatically a member of the LLC.
Whenever someone is referred to us because they are in a dispute with a member of their LLC or another shareholder of a corporation, the word dissolution must enter the discussion. But like a marital divorce, we know dissolution gets ugly, especially in closely-held businesses or family businesses, and never solves the underlying problems. We always try to find a way to avoid litigation but sometimes that is the client's only recourse and a lawsuit seeking dissolution of the company the only path.
Connecticut is closer to adopting the Uniform Limited Liability Act, and that's good news. You can follow the bill (HD 5259) here. Connecticut's current LLC act has not undergone significant change since 1993, and change is good. A limited liability company is the choice du jour for small businesses in Connecticut.