How To Fire Your Family Member To Save The Family Business

On Divided Dynasties, attorneys Mark Briol and Scott Benson guide you through the ins and outs of family business and other complex commercial cases, and how they cut through the madness to deliver positive results.

On episode one, Mark and Scott outline the first questions that family business owners should ask themselves when considering litigation. Plus, they explain what makes family business unique, the importance of following corporate formalities and some of the best and worst cases they have litigated.

Podcast Transcript: Divided Dynasties – A Family Business Podcast Episode 1

Introduction

Mark Briol

In family business cases, they’ll threaten to burn the company down, in the divorce cases and dissolution cases they will burn the company down. And there’s just a level of acrimony in these dissolution cases that is even more than the family.

Pat Milan

Welcome to Divided Dynasties. It’s a family business podcast from Briol & Benson. I’m Pat Milan, with Mark Briol and Scott Benson, two of the nation’s leading attorneys in the area of complex commercial and financial cases. Now, on this podcast, we’re going to focus on family business and what makes it different from standard corporate or LLC entities. And we hope we can help you navigate the intricacies of your family business. So Mark, and Scott, how you guys doing? Are you ready to go for this? All right, that sounds good. These guys are experienced, aggressive attorneys. They have litigated every family business dispute under the sun. And here on Divided Dynasties, we’re going to try to break down the good, the bad, and the hideously ugly that they have seen over the decades in the courtroom, and how their team has cut through the madness to deliver positive results. So let me just say at the outset here, for folks who are joining us in our first podcast, we were only kind of half kidding, when we proposed the title of your first podcast, guys, you remember that, How To Fire Your Family To Save The Family Business was the title. But that really does kind of hit quite close to home, don’t you think Mark?

Mark Briol

It does. Because at some point in time, there’s going to be a dispute in the family. And usually it happens later on once the family has made a lot of money in the business. And some people believe that they have actually contributed more to the business than the others, and they want more because of that. And so they try and do things like firing other members of the family or wedging them out of the business and taking away their shares of stock. And Scott can tell you a little bit about the Pedro case in Minnesota that has a rule about whether and when you can fire family members from a business.

Pat Milan

So you really can’t fire a family member if you’re trying to save the family business, Scott?

Scott Benson

Well, sometimes it’s a little hard because in the Pedro case, for example, these brothers had worked in the luggage business for over 40 years together. And suddenly, one became more inquisitive about what was happening exactly with some of the accounting and where the money was going. And the more questions he asked, the more his two other brothers tried to make him a little uncomfortable and get him out of the business. And finally, they ended up just flat out firing him after I think he had been in the business for 43 years. And the brother who was fired said, ‘Hey, I’ve been here this long, I had the expectation that I would have lifelong employment in this company. And certainly that I wouldn’t be forced out.’ And he brought his case, and it’s a very famous case in Minnesota. And the court ruled Yes, you, as a family member, as somebody who’s been involved in this business, you had a reasonable expectation that you would have lifelong employment with this company. And you were terminated and your brothers were in the wrong, and he collected, which was at the time, a lot of money, may not seem a lot now, but at the time, he collected a very good sum of money for his minority ownership in the business and for the pay that he expected to receive going forward.

Pat Milan 

You know, one of the things when we’ve talked about these kinds of cases, and I’ve shared with you guys cases I’ve had within our own family business, because my wife is an owner in a family business; has been for a long time. But you know, you run into this sometimes where one of the people, Mark, you’ve made the point, they just want to burn it down. That is not your goal. I mean, I said earlier, you guys are aggressive attorneys, but you’re not here to burn a business down. You’re trying to help it get to the other side.

Mark Briol

Well, we’re here to make money both for our clients and for ourselves. And burning the business down really does not get us to either one of those two points. And as Scott said with the Pedro case, now when you see complaints in the family businesses, every family business complaint I have seen since Pedro alleges that they believe they had a right to lifetime employment, and that whether they’ve worked there for one year or two years, or 10 years or 30 years, they all now believe that there’s a reasonable likelihood that they would have been employed forever. And that goes into every complaint. But yeah, what we’re trying to do is not have a burden on the family business, and try to, you know, get them so that they just have to accept the fact that the majority is just not going to make as much money as they wanted to, and that they’re going to have to share some of it with people that they may not like anymore.

Pat Milan 

You know, you guys have brought up two real interesting areas that are good examples where family business really is different. Mark, I’m wondering if you can share any examples of dynamics that make family business such a unique model, because they just don’t seem like your typical corporate or standard LLC, when there’s family, it just gets different.

Mark Briol 

Well, I’ve done a lot of these minority shareholder cases where we represent people who own a smaller percentage than the older brother or sister. The issue that we once thought was that because we do these minority shareholder cases, they’re really no different than doing a high asset divorce case. And then we started doing very high asset divorce cases in the you know, up to a billion dollars or more, and found out that there is a real difference between the minority shareholder cases and the family dissolution cases, in that where in the family business cases, they’ll threaten to burn the company down; in the divorce cases and the dissolution cases, they will burn the company down. And there’s just a level of acrimony in these dissolution cases, that is even more than the family. But the family you know, they’ve known each other for most of their lives, brothers and sisters have grown up together. But you see brothers suing brothers, sons suing father’s, father’s suing sons. I mean, it happens. If there’s money involved, there’ll be a lawsuit. And there’s no way from the beginning of the enactment of the corporate bylaws and articles of incorporation that you can draft around someone being unhappy at some point in time and suing. And since a lot of what goes into these minority shareholder cases is equity, meaning people have to determine what’s fair and what’s not fair, there’s always a case and rarely do they get dismissed out on summary judgment. So, no matter how unreasonable or awkward a complaint may appear in first blush, it’s likely the judge will let it go to trial.

Pat Milan 

But you know, you brought up the point of money. And Scott, I know we’ve talked about this or Mark, either, there’s a lot of baggage, it’s not just money. I mean, sometimes there’s the family dynamics, right? Dad shows favoritism to a certain child. You mentioned the one where kids expect lifetime employment. Another one is, maybe they don’t have the credentials, but they expect to lead the company. All of these dynamics tend to come into these cases, do they not?

Scott Benson 

Yeah, and you know, a lot of times you see that sibling jealousy kind of rise to the top in these cases. In a number of cases, they expect to be treated equally, no matter what they’ve done for the company. There’s a very famous case that just was decided in Minnesota, where two siblings, one who was running the company, really brought the company along to success, the other not involved in the business at all. And the father, out of his interest in the company, gave, it happened to be the son who was the one who was involved in the business, and was the one to whom the growth was attributable, gave him 2% more shares. And the daughter simply couldn’t accept that and sued over that. And in the end, she ended up not getting a fraction of what she anticipated that her shares were worth or that she should have received in her mind. But what she really lost was a lot of steady income, year after year after year that she was receiving from this company in the millions of dollars. And all because she couldn’t stand to see her brother receive 2% more in shares than she had been given.

Pat Milan 

You know, the other thing we talked about when we discussed this earlier, and we were trying to figure out, Is this a podcast? What are these things you guys have experienced over the years? I think one of the most interesting things I’ve heard you talk about is that when you dive into these cases, Scott, it becomes pretty clear that a high percentage of family businesses ignore business basics. And for the minority shareholder, who typically is seeking you out to help them, that turns into an advantage pretty quickly, doesn’t it?

Scott Benson 

Yeah, Mark said, you can’t guarantee that you aren’t going to get sued. But let me tell you, if you don’t follow corporate formalities, you probably for sure, will get sued. So one of the, I think, best things that you can do is to have a mechanism for a buyout should that happen. And what a lot of companies do, family companies, is they, in their bylaws or in their corporate agreements, have a provision that says ‘We’re going to value the company every year, and based on that valuation, that’s what you’re going to get paid.’ I have never seen a case where they actually valued the company every year. And that’s a problem and not following corporate formalities. We’re not having minutes from meetings not having votes on things, not having shareholder meetings, that all comes back to bite you in the end. Or you have shareholder meetings and it’s called Thanksgiving dinner, and nobody took notes about what got discussed or what happened, but things were decided during that meeting.

Pat Milan 

You know, that is so amazing. Mark, you know, when you see, for instance, there’s somebody watching this somewhere, who’s thinking about suing the family, their family, as a minority member. What are the other issues that they should think about before calling or be prepared to talk about when they call you guys to look for help?

Mark Briol 

Well, I mean, one of the things I generally ask them right out of the box is, do you want to remain friends with your family at any point in time in the future, because if you do, this is an unlikely way to do it. And so I talk to them about that, talk to him about the time it’s going to take because it’ll take one or two years, at least, before we get to a trial, or we get to a place where everybody’s either had it with each other so much that they’re going to resolve it or everybody runs out of money. I’m going to tell them that, you know, it costs a lot, there’s a lot involved in these things. And you know, it’s not going to be as fun, it’s going to be an emotional journey that they have to go through to get, what I try and keep them focused on, which is money. Not getting even, or not trying to, you know, cause physical harm to the other side, but to simply get more of the share of money than they would have gotten had they not sued.

Pat Milan 

You’re not doing a very good job of talking me into doing this. I mean, those are tough things to think about.

Mark Briol 

Well, they’re pretty mad when they get to us. I mean, that talk is more for myself to tell them later on that I expressed these opinions to them. But they’re pretty mad when they get in there. And they have had plenty of time to stew over this and to think of what they want to do. And they just want to know what the upsides are, how long it’s gonna take, what kind of punishment we can give to them along the way. And go from there. Nobody has ever said, ‘Oh, that’s a good point, I really do want to be friends with my dad, he was so good to me when I was young.’ That’s not happened yet. May happen in the future. But it hasn’t happened yet.

Pat Milan 

All right, I got a pop question for you that you’re not prepared for, but I’m gonna see how you do here. Think about best case, you may not be able to mention the name or the family, best case you ever handled. Worst case you ever handled. What made them the best? What made one of them the worst?

Mark Briol 

You can go first Scott.

Pat Milan 

Look at that. Nice handoff.

Scott Benson 

 Yeah, well, you can think a little bit longer. You know, the best case that I think I’ve worked on was for the majority brother in this case, and essentially, he had done everything right. And yet, he was still sued. But when we got to court I think the judge was very perceptive about what are the minority shareholder’s reasonable expectations here and really took to heart that, you know, the reasonable expectations are really laid out pretty clearly here in these documents, and pretty much got the matter resolved fairly quickly, because it ended up being a mediator really was able to convince both the parties that this is really going to break down based on the agreements, because the company had followed the corporate formalities and really knew what the results should be, and the court, I think, would have been willing to enforce that. And the mediator got that point across.

Pat Milan 

And who won that case?

Scott Benson 

Well, no, they both won.

Pat Milan 

It worked out. That’s why it was good, right?

Scott Benson 

Right. They both won. The one who wanted out got out, got a fair price, got what he was promised. The brother who kept the business was able to make it very successful. And, you know, it is interesting, mediators will always say this, you will look back at this after paying this and wonder why you didn’t do this years ago to really get this business on the right course. But it only works if the expectations have been set right in the beginning. And you followed up on making sure that you’ve kept those corporate agreements, and been keeping track of what those agreements are over time.

Pat Milan 

Okay, Mark, you and I are going to pretend like we’re having a really nice glass of bourbon, nobody else is listening. And you’re going to tell me the worst case ever without revealing names. But what was it that made it the worst?

Mark Briol 

There have been a lot of bad cases. I mean, when I say bad cases, I mean, generally comes down to extremely difficult people to deal with. One was a very, it wasn’t really a minority shareholder dispute as much as it was a family business dispute about who was running what and where. And the parties just absolutely, mother, daughter, son, they just absolutely hated each other. I mean, just hatred. You couldn’t go through a deposition without them starting to yell at each other during the course of the deposition and on the record, and they didn’t care. And I don’t remember, if you asked me, who ultimately won or lost that, I don’t even remember. I don’t even remember what it got settled at, or what happened. I just remember, it went away. Now another thing that happens is, after a while, I mean, after a couple of years, people notwithstanding, you have told them that this is not going to be an easy process, people don’t believe you and are armed to the teeth to go forward in war. But they get tired of it. I mean, it’s just it becomes an everyday emotional beating one way or the other. You’re either winning or you’re losing, or someone says something about someone behind their back and they want to get back at them for this. And it just wears out the best of them. Except for Scott and I.

Pat Milan 

Well, I think we’ve covered it. You talked about the basics you need to prevail in a minority case, you guys have talked pretty eloquently, I think, about the consequences and being prepared for how long it will take and the difficulty. And you’ve even talked about, you know, families that have survived and others that have not survived the suit. You guys are among the nation’s best when it comes to helping minority shareholders get a family business on track and performing in the best interest of all the shareholders. Whether it’s a minority shareholder right, securities fraud, patent litigation, or high asset divorce, you guys handle all of that stuff, right? I mean, people just literally pick up the phone and give you a call and they can come in for that first meeting. Isn’t that how the process works?

Mark Briol 

That’s how it works.

Pat Milan 

Cool. Well, what we’ll do is we’ll let folks know they can reach you at Briollaw.com. br i o l la w.com. We’re going to have more episodes of Divided Dynasties to come, and to subscribe to the podcast you can find us on Apple podcasts, Spotify, or YouTube. Mark, Scott, thanks for your time today. And we will see you guys on the next podcast.

Mark Briol 

Thanks Patrick.

Mark Briol 

Thanks Patrick.

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