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Law Students and Young Lawyers

Resigning as a Shareholder

I had only been a lawyer for a few months when I had my first shareholders dispute to deal with.

My boss told me to take the position with opposing counsel that his client’s resignation from “all positions with the corporation” included his resignation as a minority shareholder.  I told him that his argument was ridiculous. One cannot resign as a shareholder.

Nonetheless, my boss was my boss and an experienced litigator to boot, so I did what he said. Opposing counsel told me that our position was ridiculous. You cannot resign as a shareholder.

I managed my best poker face and told him that you can and his client did.

And there the dispute sat for a few years. Our client ran the corporation as he saw fit and refused to acknowledge that the minority shareholder had any rights whatsoever. The minority shareholder knew that our client had deep pockets and would stall any lawsuit forever, and the corporation was in a shaky financial position anyway. He sat back for a long time while his expectations dropped. Eventually there was a settlement, pretty much on our client’s terms.

If we had a justice system, the minority shareholder would have sued. The judge would have told our client that he was being unreasonable and an arrogant asshole as well. He would have zapped our client with a giant cost order and maybe granted the minority shareholder some other remedy to set the situation straight.  I imagine that lawyers just graduating law school might think that this is what would normally happen.

However, what we have is a legal system, not a justice system.  In our system, those with money can often drag things out until those without money are forced to choose between buying food and paying rent on the one hand and pursuing their legal rights on the other.

There are some scattered solutions out there that level the playing field a bit.  A touch of pro bono. A bit of contingency fees. The occasional class action (although the portion of the settlement going the plaintiffs often doesn’t amount to much). Perhaps some litigation financing. But generally speaking, the Golden Rule prevails. For those of you who are unfamiliar with that rule, the  modern restatement is as follows: “Those who have the gold make the rules.”

My point?  New lawyers have to understand the practical realities of our system. Every dispute is a game in which the goal is to determine how much leverage your client has and how much leverage the other side has. Once you have done that you can develop a strategy to maximize yours and minimize theirs.

Sometimes the answer is litigation. Sometimes there is a more practical route to a solution. Often you have to look your client in the eye and say, “Don’t waste your money on me. Just suck it up and move on.”

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