There’s little doubt in my mind that “business divorce” has achieved name recognition as a distinct subgenre of commercial litigation whose regular practitioners, by dint of experience dealing in and out of court with the many and varied legal and practical issues arising from dysfunctional family and non-family owned closely-held businesses, offer clients a level of expertise not shared by civil litigation generalists.
I like to think that my blog, in its tenth year and still chugging along, has contributed to the enhanced recognition along with the efforts of a small but growing cadre of fellow bloggers, contributors of articles in legal publications, and speakers at bar association programs and business valuation seminars.
Now, with the publication of a smartly constructed and well-written treatise called Litigating the Business Divorce (Bloomberg BNA 2016), the law practice of business divorce truly has come of age.
LBD, as I’ll call it, is the fruit of a two-year project led by contributing editors Kurt Heyman and Melissa Donimirski in collaboration with an all-star cast of contributing authors. Kurt is a partner and Melissa a senior associate at the firm of Heyman Enerio Gattuso & Hirzel LLP in Wilmington, Delaware. Kurt, a seasoned business divorce litigator whom I’ve known for about ten years and whom I interviewed last year for my podcast, is a founding Co-Chair of the Business Divorce Subcommittee of the ABA Business Law Section, Business and Corporate Litigation Committee.
LBD consists of seven chapters, the first two of which introduce the subject of business divorce and discuss pre-suit considerations including information gathering, choice of law, jurisdictional issues, contractual limitations, and non-litigation options for resolving internal disputes.
Chapters 3 and 4 address, respectively, effectuating and challenging the several statutory and non-statutory vehicles used to separate the owners of a closely held business entity, including voluntary and involuntary dissolution, freeze-out mergers, reverse stock splits, appraisal proceedings, and claims by non-controlling owners for equitable remedies and damages.
Recognizing that business divorce litigation encompasses not only dissolution and other forced separation devices, Chapter 5 provides an overview of the most commonly pleaded claims related to the breach of fiduciary duty, breach of contract, and business tort. The section on fiduciary duty also reviews the vital distinctions between direct and derivative claims, limitations on use of derivative claims, and exculpatory and waiver provisions in owner agreements.
Chapter 6 covers issues in damages and one of my favorite topics, valuation, including sections on standards of value and valuation approaches and methodology. This chapter does an excellent job of explaining in easily understood terms the basics of business appraisal–a discipline outside the ken of most lawyers but one the lexicon and operative concepts of which must be familiar to the business divorce lawyer given that the vast majority of cases end in buy-out either by court order or, more commonly, settlement.
LBD‘s concluding Chapter 7, entitled “Protective Measures–A Practical Guide,” fulfills its mission with a how-to guide to common pitfalls that can be avoided at the formation stage by including provisions in owner agreements designed to prevent and/or resolve future disputes without litigation, such as dissociation and deadlock provisions and, of course, buy-sell agreements.
One of the biggest challenges writing a law treatise for a nationwide audience is dealing with the many differences in applicable statutory and common law among the states. LBD does not attempt a 50-state survey, which would take thousands of pages. Instead, it tilts in favor of Delaware given both its status as the organizational state of choice (at least for the more sophisticated closely-held entities) and its Chancery Court’s prominent voice as the nation’s leading business-law court, while also including in the text and in its extensive footnotes discussion of, and many citations to, statutes and cases from other major states including, I’m happy to report, a disproportionate share of New York jurisprudence.
LBD also is to be commended for devoting at least equal billing to the still-developing law governing business divorce and related disputes among members and managers of limited liability companies, the popularity of which in the last two decades has surpassed new formations of traditional corporations.
In short, whether you’re an experienced business divorce litigator or just taking on your first business divorce assignment, LBD is an invaluable resource that belongs on your bookshelf. Congratulations to Kurt, Melissa, and all those who contributed to its publication.