When minority shareholders in New Jersey (including LLC members) are being treated unfairly or oppressively, the New Jersey minority shareholder oppression statute provides significant rights that are written about quite frequently on this site. The upside of a successful oppression suit is often a buyout at market value. However, what if the minority shareholder loses the case?
The consequences of losing a shareholder oppression suit can be enormous, as most shareholders get only one true “bite at the apple.” In other words, if you already felt you were being treated unfairly, but the court did not grant you the relief that you wanted and left you as a minority shareholder, how likely would you be to ever file a second shareholder oppression lawsuit? After a six-figure legal bill that resulted in a loss, how eager would you be to do it all over again? Even if the facts had become even more egregious, and you now had a suit with a higher likelihood of success, most litigants would be too gun-shy to go through it all over again.
And the majority shareholders would know full well that few people would have the finances, the fortitude, and the wherewithal to file a second suit. Because of this, many majority shareholders in such a case would only “double down” on their actions.
For the foreseeable future, the majority shareholders would be able to use your capital as they saw fit, with you having little or no say over matters. You would not be able to use your capital to start another business. Being in a position of power, the majority would have the ability to manipulate their salaries and bonuses, keeping any benefits you receive from your ownership interest – like dividends – to a bare minimum. Whatever actions led to the first lawsuit would likely get significantly worse once the case was over.
In other words, a minority shareholder oppression action is unlike most other commercial litigation, because usually the parties to litigation have already gone their separate ways, and are simply cleaning up the mess. In a breach of contract litigation, the parties suing each other usually would have no reason to do business with each other ever again. So, if the plaintiff loses, it does not get the money it sought in the case; but it does not have to remain in business with the defendant for years, or even decades, after the suit is over.
Since the consequences of losing an oppression suit are so critically high, it must be done right. There are many fine litigation firms out there, but make sure the attorney you hire not only has the experience to win your oppression lawsuit, but also has the experience to tell you if you are better off not filing a suit just yet, and possibly taking other action until your case is stronger.