From a recent statement to clients from Toby Henderson, Shareholder:During this last year, SS+D clients enjoyed outstanding success in the courtroom victories that are unmatched in the Miami Valley .As an example, following a six-week trial in Federal Court, the SS+D team, led by my partner, Jim Dyer, and I obtained a complete defense judgment for a family of shareholders in a lawsuit brought by a Fortune 200 company seeking up to $50 million in damages for the alleged fraudulent transfer of assets and to impose personal liability on the shareholders for corporate debts. This defense judgment is believed to be one of the largest in southwest Ohio. There are valuable lessons to be learned from this case.
How is personal liability imposed on shareholders, officers and directors and what recent changes in the law have occurred?
Shareholders, officers and directors are generally not liable for corporate debts. In some cases, however, they are not insulated from liability and their personal assets are at risk. The old rule was that shareholders, officers and directors are responsible for corporate obligations when (1) control over the corporation is so complete the corporation has no separate mind, will or existence of its own, (2) control is exercised in such a manner as to commit fraud or an illegal act, and (3) injury or unjust loss results. In the recent case of Dombrowski v. Wellpoint, Inc., the Ohio Supreme Court expanded the occasions under which personal liability may be imposed. The new rule is that shareholders, officers or directors are liable not only in cases of fraud or illegal acts, but in cases where there is “extreme misconduct” or “egregious wrongs.”
What can a shareholder, officer, or director do to protect himself/herself?
In these challenging economic times, plaintiffs will increasingly seek to impose personal liability on shareholders, officers, and directors. But there are steps that you can take to reduce the possibility that corporate obligations will be shifted. These steps include holding and documenting annual corporate meetings; maintaining proper records of corporate transactions; ensuring that money is not commingled among personal and corporate accounts; maintaining and updating stock ledgers and issuing proper stock certificates; and properly executing business documents.
SS+D is a unique law firm. We approach all litigation with passion and unwavering dedication to our clients. We partner with our clients to understand their goals and identify objectives for early dispute resolution – in or out of the courtroom. No client matter entrusted to us is the same, but we proudly stand on our record of results. Whatever your litigation or other legal service needs, SS+D can help.