Sibling Rivalries & Managing the Balance of Power

Overview and Introduction

Mark Briol 

You’re looking at two different aspects of the family business, you’re looking at the aspect of the family business. One is being an employee, which is the Pedro case, and two, you’re looking at it as being a shareholder. Now, you can always fight, you know, fire somebody, whether or not you ultimately have to give them back their job or pay them damages for wrongful termination, that’s a different story. But trying to force someone to get out of the company and sell their shares, that’s a different story. Hard to force someone to sell their shares to the company simply because you think they’re not acting appropriately as an employee. You can take away their salary, which can take away their rights as a shareholder.

Pat Milan 

Welcome to Divided Dynasties. It’s the 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 focus on family business, and what makes it different from standard corporate or LLC entities. And hopefully, we can help you navigate the intricacies of your family business. Mark and Scott have litigated every family dispute under the sun. I literally have not been able to find something you guys haven’t touched. And I think misery loves company sometimes, which is why we have a bit of a treat today. I wanted to show a clip, we can’t show the clip because of copyright protection, but there was a celebrity family owned business that popped up on my radar. And I think it just proves, when we took a look at it, that it doesn’t matter if you’re rich or famous, trying to operate a family business leads to conflict. And in this case, the piece that I saw, and by the way, we will put a link in here for people watching the podcast if you want to watch it. The clip itself, it’s between one of America’s most, I would call it, infamous families, the Kardashians. And on an episode of their TV show “Keeping Up With The Kardashians”, which by the way, I’ve never watched an entire episode, but I have seen clips, it really becomes apparent that the oldest Kardashian sister, Kourtney, really values her personal time a lot more than Kim, who is really focused on expanding the family business empire. So, I mean, it’s clear, when you look at the clip, guys, we looked at it before we started the podcast. They’re not carrying an equal load. And part of what I wanted to poke at there, even though it’s the Kardashians, and we laugh about it. From your experience, I’m just wondering, how many different ways have you seen these things blow up when different people are carrying a different part of the load?

Family Business Dynamics and Power Struggles

Mark Briol 

Well, first of all, with respect to the Kardashians, I am a Kardashian fan. And after looking at that clip, you have to remember that somebody videotaped and then somebody made a decision that that should be aired. And so, I don’t think that there’s much that goes on in that family that’s not scripted, and completely played out and edited before it goes on camera. So whether one has more of a passion about the business or not, they both look very passionate to me about what was going on. You know, it’s one of those things where there are fights, especially in family businesses. One because you grew up together, or you were brothers and sisters and had your father and so you kind of know all of the soft spots that you can poke to create the greatest. I mean, it’s like being in a marriage, I mean, you know what makes the other person mad. And that’s what you go for. I mean, you want to get the anger out and get under their skin. You know, with the folks like the Kardashians, I mean, they’re, the more money people have, the more they can fight, the better warriors they can have on their side of the table, the more money they can spend. I mean, and it’s like I live on Lake Minnetonka and sometimes I’ll see a half a million dollar boat go by and I’ll ask my kids, Why do you think they have a half a million dollar boat on Lake Minnetonka? And my kids always answer: Because they can. And so I think you know, it plays out in different ways with different warriors and different amounts of money. But suffice it to say that it’s the ability to finance the lawsuits that brings out the worst.

Pat Milan 

But Scott, don’t you think sometimes the Kim Kardashians of the world, right, the ones who, in their heart, they think they’ve got a lot more passion for the business than another family member, particularly like a sibling. They kind of have enough with it and they start thinking, I should limit their ownership. And you see it where they do things behind the scenes. And the rationale is, I’m working harder. I care about this more. It happens. 

Kardashian Siblings’ Ownership and Expectations in their Business

Scott Benson 

Yeah. And interestingly enough, it happens all the time. And you would think people would think about this, when they’re setting up their business to decide, Hey, which one of us is going to be doing the majority of the work, maybe that person deserves more of an interest in the company. But people don’t think about that because it’s like, when you get married, I guess, and don’t have a prenup, you think everything is going to go great. And you don’t think about the fact that we all have different talents and expertise. Maybe one doesn’t really want to spend the time in the business and should be limited more as to how much of an interest they’re going to have in the company. The interesting things with the Kardashians, is they probably have everything on tape. So, in Minnesota, I won’t talk about what California has. Minnesota basically says your reasonable expectations are going to control. And so their reasonable expectations are probably somewhere in their taping of what happened in their lives when they were setting up the company. So they may actually be able to go back and see hey, you know, Kourtney said, I can’t work as hard as you do, but I deserve to have equal ownership because you’re using my likeness and my name. And maybe that’s recorded somewhere, and that would be important. For us mere mortals, write it down! What your expectations are when you’re coming in, so that it’s clear what people thought they were doing when they got entered into the business. 

Pat Milan 

Hey, Mark, I want you to pretend for a minute that you’re Kim’s attorney, okay. And she shows up at the office and says, Hey, I want to lower Kourtney Kardashian’s ownership mix. What would you tell her? 

Family Business Disputes and Shareholder Rights

Mark Briol 

Well, first of all, let’s try and make it more realistic. I doubt very much whether she would come to my office. I think I would be the one doing the traveling, if that was required. Lowering somebody’s – forcing a buyout of someone’s shares is almost more difficult than forcing a purchase of your shares by the company. Trying to lower somebody’s share ownership because you think they’re not doing a substantial job or something, very difficult to do. About the only reason that you can force another person to sell their shares to the company versus another person being able to have the company buy their shares, is if you show that they’re actually involved in some intentional misconduct, like stealing, embezzlement, fraud of the company, or doing something to damage the company severely. Otherwise, you’re stuck with that shareholder and getting that shareholder out, I think is more difficult than that shareholder trying to do a buyout on their own.

Pat Milan 

You know, there are, I think a lot of real life similarities, even though they are the Kardashians. I mean, let’s assume someone in Kourtney’s position, right, more devoted to family time than like work time. And you assume, Hey, we got in this together, I’ve got a job for life. Does someone like that have a case if they’re repeatedly walking out or difficult to schedule for work projects? And they say, Well, it’s because I’m more devoted to my family. Do they have a case that they have a job for life?

Scott Benson 

Well, you might in Minnesota because there is the Pedro decision, which we’ve talked about in earlier episodes, that basically say, if your reasonable expectation is that you have a lifetime employment, that is what you have; you are owed lifetime employment. It’d be interesting to see in this case, how they prove that she had that reasonable expectation. In the Pedro case that we talked about before, of course, they had worked at the company for 40 some years together. And then when the brother who they were trying to force out, and who they fired, started asking some questions about the accounting, they tried to get rid of him. Now that’s probably not the case here with the Kardashians and Kourtney, who really may have had the expectation, Hey, I don’t have the same burning interest in this business, but we entered into this in an equal partnership, and you agreed to do that because you were going to use my likeness and use my name and you were going to trade on that. And that’s what I bring to the party. So it really depends on what the facts were there.

Pat Milan 

Hey, Mark, what would your advice be to someone who’s like Kourtney? And in their family business, they’re being kind of domineered by another family member. What would you say to them to protect their interest longterm?

Mark Briol 

Well, first, I want to go back to the question that you were asking Scott. And the thing that you have to remember is you’re looking at two different aspects of the family business. You’re looking at the aspect of the family business- one is being an employee, which is the Pedro case. And two, you’re looking at it as being a shareholder. Now, you can always fight, you know, fire somebody, whether or not you ultimately have to give them back their job or pay them damages for wrongful termination, that’s a different story. But trying to force someone to get out of the company, and sell their shares, that’s a different story. Hard to force someone to sell their shares to the company, simply because you think they’re not acting appropriately as an employee. You can take away their salary, which can take away their rights as a shareholder. Now, going back to your question, which was?

Pat Milan 

So if you’ve got the person who feels like they’re always being minimized, but they have family on their side, what should they be doing to protect their interests long term?

Mark Briol 

Well, you know, it’s one of those things is to establish a record. Now, we tried a case not too long ago, where I would not endorse that people do this, but one of the board members was thinking that he should start protecting himself. So he taped 35 hours of material of all the board meetings, and all the conversations he was having, including conversations that he would have with staff members about various members of the Board of Directors. You know, what you can do is start protecting yourself or, you know, consult a lawyer, make your issues known, and try and reach an accommodation. I mean, if you can’t and you ultimately do not want to be employed by the company you can quit. If you ultimately do not want to have any ownership in the company and want to be bought out, well, then you’re going to have to make a buyout offer, you’re going to have to tell them, This is what I want for my stock. In that case, you’re going to have to get a lawyer, you’re going to have to get an expert witness, you’re going to have to look at the books and records, and you’re going to have to make a determination as to what you think the value of the company is, and how much you should be entitled to. Which in the end is an equitable case for the judge to figure out in terms of what someone is owed, and when they should be paid out.

Pat Milan 

You know, as we were looking at the Kardashians, you think about, you know, where these things head. There’s another famous family fight that you guys know about that ended up in the courts. It wasn’t television in Hollywood, it was dairy cattle, and a dairy cattle operation. But like the Kardashians, I mean, they had different siblings with different talents, different roles. In the case of this other business, you had a brother who was acting as a CEO, and the other one was essentially working on the factory floor. This gets to that, I think what we’re really talking about here, is this balance of power, then there’s also the balance of ownership. Isn’t that where this attitudes and thoughts about who controls what and if I’m getting – isn’t that where it all really comes from in one way or the other?

Mark Briol 

It is. In the cattle case, it, you know, they were all equal shareholders. And they were all entitled equally to a distribution of the assets of the company if it were sold. What was troubling is that the one person, one of the brothers had taken over as the CEO. And he was paying himself exorbitant amounts of money. And the other person was getting paid a reasonable salary, but not as much as the CEO. And that’s what created the dispute. I mean, it was the feeling that one of them was being treated unfairly by the person who controlled the ability to pay him more and didn’t.

Unfair Distribution of Company Profits 

Scott Benson 

Well, and the, I think, the issue is, you know, the brother, who was not the CEO, was being paid reasonably for a person of his position. You know, he essentially was out milking the cows and actually working in the company in the business on the ground level. And a person of that level, he’s probably getting paid what that person would get paid. The other brother was taking a huge salary and then claiming they couldn’t pay any dividends out to the shareholders. And that’s where the issue came in is, there was a huge disparity in salaries. One was claiming, Well, this is what CEOs in a comparable size business make. The other would say, Yeah, but because you’re taking in so much of the money that the company generates in salary, in benefits, in flying you around on vacations that you claim are company related, etc. Because you’re taking so much of that money, you’re not paying me the dividends I deserve, so this is unfair to me.

Mark Briol 

If I remember correctly, didn’t there come a time when they refused, usually in companies at the end of the year, they issue dividends sufficient to be able to pay the taxes that are required to be paid in terms of whatever distributions they took during the year. And I think in this case, the older brother, who was the one manipulating the payments of funds to the other shareholders, refused to make distributions to pay taxes. And I mean, obviously, all of a sudden, you’re looking at a huge tax bill at the end of the year with an expectation that there’s going to be a distribution at least in the amount sufficient to allow you to pay your taxes. I think that was one of the real triggering events in this case that set everybody off.

Pat Milan 

So I’m guessing that the brother who was working on the floor milking cows, prevailed in this case?

Scott Benson 

He prevailed in getting his value for his shares out of the company. And, had a value that our expert basically said the company should be valued at. The interesting thing is, I think he would have probably stayed with the company and wanted to keep working at it and continuing to see it grow had this not all happened. And as Mark said, one of the favorite things of those who are kind of in control of the company, who want to basically oppress and force out the other shareholder, one of the things that they will do is stop paying distributions to pay taxes, maybe stop paying for health insurance, kind of cut off those things that they can afford to pay for, because they’re making millions of dollars. But the person who’s getting paid $50,000 a year can’t possibly pay their taxes, and can’t possibly pay on their own their health insurance, etc. 

Pat Milan 

So there’s somebody watching this right now who’s like, You just described my situation, right? A sibling or a family member who’s paying themselves a lot. I can’t even pay the taxes on the stuff. I mean, if they’re in that position, is this call Briol & Benson time? Or should they be doing something internally first?

Minority Shareholder Rights and Family Business Disputes

Mark Briol 

No I think if you’re actually at that stage, you’re at the stage of defaulting on your taxes, I mean, not being able to make a tax bill, I mean, things that become pretty urgent by that time. And obviously, the person who has made the decision not to distribute money for taxes, knows what he or she is doing, and is trying to force the other person into a lawsuit situation. So there’s no, I mean, if that happens, there’s no time to try and do it on your own. I mean, because it’s too complicated. They’ve probably been withholding books and records from you, they’ve probably been withholding information about the company necessary for you to be able to file your taxes. I mean, they’re setting you up. And it’s time to get professional assistance. 

Pat Milan 

So there’s two sides to this point, obviously, there’s the person in charge. Maybe someone’s watching this, and they’re doing it. Your advice to them to get their act together to avoid what would become a really ugly fight. 

Mark Briol 

Well, it would be to hire us. I mean, you know, we do represent both sides of the minority situation. So if they want to know the right way to be able to, you know, get people out of the company, or to be able to, you know, lower distributions without being sued, and doing it the right way so that they automatically don’t start a lawsuit. Well, again, you need professional advice on this. In the cattle case, we knew they had professional advice. And as I said, you know, when you have money, you can hire better armies, better weapons, better ammunition. I mean, and so you’re usually pretty stocked up by the time you’re ready to get out on the battle floor.

Pat Milan 

Scott, we talked about this in other podcasts, but it is pretty astounding when you look at family businesses, how little documentation actually exists that should and needs to exist. I mean, if you’re the party who feels like you’ve been wronged, if it’s a family owned business, you’re gonna cause pure hell for the rest of the family because they probably haven’t done what they need to do, because it’s just what happens in family businesses. 

Scott Benson 

That’s true. One of the best things that I think we’ve talked about this before, one of the best things you can incorporate is a buyout provision. So if you want to be bought out, here’s the price. It does require some diligence. Usually, they would need a yearly appraisal of what the company is valued at to determine what the price is going to be. But believe me, if push comes to shove, it’s well worth having that complied with on a yearly basis to make sure that there’s just no question. Look, if you want out, here’s what you’re getting. We aren’t going to have to hire experts, we aren’t going to have to go to court. We have this in our either bylaws or any of the corporate agreements that you might have. If it’s an LLC, in the management agreement. We’ve got this in writing and we followed all the formalities. We know if you want to get bought out, here’s what you’re going to get.

Pat Milan 

Yeah, we’ll wrap it up here. Well go ahead, Mark, sorry. 

Mark Briol 

The interesting thing about that is, first of all, you’ll see that there are a lot of bylaws that require there to be a valuation at the end of each year. And invariably, they don’t do it at the end of each year. Or if they do a valuation at the end of each year, it’s usually by some person who is hired by the person in control of the company, and he understands what the purpose of doing this valuation is for. And so they can – expert witnesses’ valuations are very subjective in a lot of cases. They can move the needle down, meaning the company is less valuable. And so when it actually happens, they look back and say, Oh my God, this company just isn’t that valuable. I’ll buy you out at these regular valuations that we had done. And then of course, you get a lawyer involved, and you find out that these are basically false valuations that have occurred, and then you get into another fight about whether or not those were true valuations.

Conclusion

Pat Milan

Yeah, and hopefully your fight’s not as ugly as the Kardashians fight, which by the way, we have the link to it if anybody wants to see it. I think our viewers can tell you guys are really good at helping minority shareholders get a family business on track, and performing in the best interest of all the shareholders. Whether it is a minority shareholder rights, securities fraud, patent litigation, or a high asset divorce, Briol & Benson are prepared to answer your questions and help you figure out if you have a case, and how to get control of your rights. For more information, go to Briollaw.com and if you have questions about your family business, or any other complex commercial cases, you can send them to us by email: podcast@briollaw.com. And to subscribe to the podcast, you can find us on Apple Podcast, Spotify, or YouTube. Mark, Scott, thanks for your time today and we’ll see you guys on our next podcast.

Scott Benson 

Thank you.