October 1, 2009
We believe that you may enjoy hearing about some of the interesting cases we have handled as a Team effort.
This is a good example of Murphy’s law that “no good deed goes unpunished”:
Our client, a successful businessman, who had previously sold his business which I will refer to as his “first company”, decided to purchase the business of the first company from the new owner and to go back into business. He formed a new corporation which I will call his “second company.” This company was formed at great personal expense to our client. The shares of stock of the new company were divided 60% to him and 40% to a valued and trusted former employee who was employed for a number of years in the first company. The employee was made president of the new company, put in charge of operations and handled all the financial affairs for the second company.
After a few years of what appeared to be a successful operation of the second company, our client became concerned when he learned his president had “preferred” status at some casinos in Las Vegas. After a rudimentary check of the company’s financial records, and a confrontation with the president, he admitted he had issued company checks to his credit card company to cover gambling losses and recorded the checks as being payable to company vendors. Since the payments to non-existent suppliers generated deductions that were improper, the company had to file amended tax returns resulting in hundreds of thousands of dollars of additional taxes and interest and possibly penalties.
Even though, when confronted, the president admitted his wrongdoing, based on a relationship going back to boyhood, our client continued the president’s employment with no change in the president’s very generous salary and benefits exceeding by five times what he had formerly earned as an employee. As a condition for continued employment, our client required the president to sell his 40% share of ownership for which he would be paid according to a formula after an accounting was done. The president had not paid one cent for the shares when they were initially issued! An agreement was signed between the parties subject to the right of the president to cancel if his attorney, after review, disapproved it. The president not only exercised his right to cancel the agreement but filed suit against our client and the company alleging that our client was guilty of abusing his status as a minority shareholder. On our advice, our client then added an experienced independent business owner as a director of the company, changing the voting ratio on the board to 2 to 1. The president was thereafter terminated as an employee and officer.
The ex-president then formed a competing company, and sought to appropriate our client’s customers and business.
A period of intense legal activity followed, in both the courtroom and the board room. Our corporate attorneys attended all board meetings, guiding the proceedings in keeping with their knowledge of the complex inner workings of the Illinois Business Corporation Act, while members of our litigation team pressed the issues in the courtroom. Forensic accounting and good old fashioned legal investigation to disclose the full range of facts and deeds had our staff burning the midnight oil. Effort was put forth by nearly the entire DiMonte & Lizak team, incensed by the attacks on our client and attempts to pervert the law and pirate the business. Our research and discoveries, presented in open court provided a daunting defense to the claims of the ex-president. His defenses became weaker as his credibility before the court eroded.
Ultimately, the litigation favorably resolved in favor of our client, when the ex-president capitulated and settled the dispute. This was very expensive for both parties and has proved to be disastrous for the ex- president, for many reasons. Disclosure of the extent and nature of his conduct was inevitable under the circumstances, leading to collateral damage to him and his family members as well. A confidentiality agreement prevents disclosure of the extent and details.
Although many cases do not justify such a full team effort, this one did, and the results brought justice to our client, and a sense of pride to our firm. This was handled as a team effort between myself and my partners, Lin Hanson, Jeff McDonald, Paul Greco, and Margherita Albarello.