Family Owned Business Dispute Resolution
When someone decides to start a new company, it is natural that they should want people they already know and trust to be a part of the new company. It is for this reason that family businesses—a business controlled by two or more members of a single family—are ubiquitous. Family businesses are tremendously important for the U.S. economy. They represent the majority of all businesses and employ about half the nation’s workforce. While working with family can have a number of benefits, the family dynamic can pose unique challenges when business disputes inevitably arise.
| Transcript: We represent a number, over the years, of large closely held family businesses where, at one point, they were successful businesses where the relatives got along. In this case, we represented a business that had been founded by brothers. One of the brothers died, and the other–our client was the sister-in-law. The brother-in-law, in this very complicated real estate business, decided he would seize control of the family business and overcharge and cheat his sister-in-law. We came up with a strategy to get the sister-in-law made whole by tens of millions of dollars. After years of trial, we were on trial in that case for two years. We worked with forensic accountants and tax accountants and were able to show that there was a substantial amount of theft, in effect, by the sister-in-law with ghost payrolls and other techniques that the brother-in-law was using to siphon off money from his sister-in-law. |
From Peter’s interview for the Masters of the Courtroom series on ReelLawyers.com.
Business disputes are not unique to family businesses, however. Disputes are a normal part of any business relationship—or any relationship personal or professional for that matter. It is the fact that the business system and the family system naturally are deeply interrelated that make family-owned business disputes unique. Family businesses at their core are extensions of family relationships.
Often fractures in the family dynamic spill into the business domain. Likewise, expectations that family members have about their roles within the family structure can cause friction within the business. Business values and family values many times overlap, but they do not necessarily align. Family values often stress putting the family’s interests first and taking care of family members no matter what. Those values, however, may conflict with the goal of maximizing economic return in a business and may lead to a reluctance to dissociate a family member who is misusing or harming the business.
When family and business mix, it may also be difficult for family members to separate their work identity from their family identity. For people who don’t work with family members, this distinction may be easy. But when family members work together, this role separation becomes exponentially more difficult. For instance, siblings may have difficulty taking orders from other siblings—particularly if a younger sibling is in charge. To the extent these identities differ, family businesses have built-in conflict potential.
Families that decide to go into business together would be wise to plan for conflict and provide for dispute resolution mechanisms in advance—preferably at the outset of the company when drafting corporate documents like company bylaws or an operating agreement. This can useful to help family businesses avoid litigation—along with the time and money commitments inherent with it—and prevent the deterioration of family relationships.
One way to do this is to provide for the settling of disputes via mediation. Mediation involves appointing a neutral third party, often a retired judge or attorney with specialized training and a wealth of experience, who will listen to the parties and utilize unique problem-solving approaches to resolve the parties’ dispute. These sessions are confidential and a way for parties to explore and resolve issues without airing the family’s dirty laundry in a public forum where it will be available for anyone to see.
Another option if mediation proves unsuccessful is to provide for resolving disputes by binding arbitration. Arbitration, much more than mediation, approximates a courtroom setting. An arbitrator is appointed or selected, often a former federal or state judge, and acts as the finder of fact and law in the dispute. The parties present their case to the arbitrator who then issues a ruling. Arbitration shares many important similarities with mediation. Arbitration proceedings like mediation are confidential and can be conducted in private. Additionally, disputes are often resolved quicker and at less expense than in a court case. Even where parties resolve their family business disputes in mediation or arbitration, judges typically enforce settlement agreements reached through mediation and arbitrator’s decisions.
Super Lawyers named Illinois business law trial attorney Peter Lubin a Super Lawyer in the categories of Business Litigation, Consumer Rights, and Class Action Litigation. DiTommaso Lubin’s Illinois family business dispute trial lawyers have over thirty years of experience litigating complex family business and partnership disputes, class action, copyright, noncompete agreement, trademark and libel suits, consumer rights and many different types of business and commercial disputes. Our Chicago and Lisle business dispute lawyers handle emergency business lawsuits involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also handle other typical commercial litigation matters involving copyrights, trademarks, injunctions, and TROS, covenants not to compete, franchise, distributor and dealer wrongful termination and trade secret misappropriation. We also assist businesses and business owners who are victims of fraud. You can contact us by calling 630-333-0333. You can also contact us online here.
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