"Ouch! That hurt." I can imagine the individual defendant must have said at a minimum something along those lines when the Court not only ordered the removal of that defendant's attorney due to a conflict of interest, but directed that the individual defendant also repay to the corporate defendant $300,000 for legal fees improperly paid by the corporation on his behalf in the defense of a shareholder lawsuit.
It is not unusual that a corporation be permitted to pay the legal costs of their officers and directors when those officers or directors are being sued for their conduct in connection with the affairs of the corporation. Such indemnification in fact is quite common. However, in the situation in which the corporation is a nominal party and the action in reality is a dispute between two shareholders, it is inappropriate for corporate funds to be utilized for the payment of one shareholder's attorney's fees.
In a matter handled by our office, the dispute was between a surviving shareholder and our client, the other shareholder's widow whose estate was suing both the corporation and the surviving shareholder for the value of her husband's interest in the corporation. The corporation was closely held and for all intent and purposes had ceased doing business.
Thus, the only issue to be decided was whether the estate was entitled to receive value for the deceased shareholder's interest in that corporation.
The surviving shareholder had taken control of the corporation and had it pay his legal fees incurred in defending against the estate's claim. In essence, the widow was paying for not only her prosecution of her claims but for a portion of the individual defendant's defense against those claims. The individual defendant and his law firm engaged in this course of conduct until the discovery exposed the payments that he was making to the firm. The litany of ethical violations committed by the law firm in this process, and cited by the Court on the record, are too numerous to include in this letter but sufficed to say: "Another one for the good guys."
Sincerely,
Mario Biaggi Jr.
It is not unusual that a corporation be permitted to pay the legal costs of their officers and directors when those officers or directors are being sued for their conduct in connection with the affairs of the corporation. Such indemnification in fact is quite common. However, in the situation in which the corporation is a nominal party and the action in reality is a dispute between two shareholders, it is inappropriate for corporate funds to be utilized for the payment of one shareholder's attorney's fees.
In a matter handled by our office, the dispute was between a surviving shareholder and our client, the other shareholder's widow whose estate was suing both the corporation and the surviving shareholder for the value of her husband's interest in the corporation. The corporation was closely held and for all intent and purposes had ceased doing business.
Thus, the only issue to be decided was whether the estate was entitled to receive value for the deceased shareholder's interest in that corporation.
The surviving shareholder had taken control of the corporation and had it pay his legal fees incurred in defending against the estate's claim. In essence, the widow was paying for not only her prosecution of her claims but for a portion of the individual defendant's defense against those claims. The individual defendant and his law firm engaged in this course of conduct until the discovery exposed the payments that he was making to the firm. The litany of ethical violations committed by the law firm in this process, and cited by the Court on the record, are too numerous to include in this letter but sufficed to say: "Another one for the good guys."
Sincerely,
Mario Biaggi Jr.
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