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I invested $200K in a Co that has since changed names and refuses to carry my shares over to the new Co. Same owners, new name.

Irvine, CA |

I formally met w/ the CEO/pres, board last month and they thanked me for my $ which was used for research development of the invention. I have e-mails stating that they were set to transfer my shares to the new CO name. However, now they got greedy and won't issue me new shares. They will not respond to my calls, e-mails, or honor my certificate of shares from the previous Co. They are shamefully cold shouldering all past investors whom in good faith financed them. Now the Co is poised to sell the invention to the US Air Force in Feb, and keep the proceeds/profits for themselves. I am also the highest $ investor amongst all other investors. I told them that I would sue them to block any such sale unless they include me as a continued partner. Any suggestions? Thank you.

Attorney Answers 9

Posted

Your problem has a lot of moving parts, and your question should raise many new questions for any attorney evaluating your situation. Yes, to summarize, under DeBaun v. First Western Bank & Trust Co (1975), California corporate majority shareholders cannot abuse their majority status over minority shareholders by working for their own benefit to the exclusion of the minority. Majority shareholders have a fiduciary duty to act in the interests of all shareholders, not just the majority. The first questions arise when considering what your status with the company really is. Is it really the same company with a different name? Was there a merger? Was there a buy-out? Was there an asset sale? Is it really a corporation or an LLC? What is the reasoning for their exclusion of you as a shareholder in the new company? This is where the paper trail comes in. You need to gather all the evidence that you have and all the documentation relating to the company’s status and run, not walk, to a qualified business attorney to evaluate your case. Time is of the essence if you are to exploit your leverage with the upcoming sale. You need to start talking face to face with someone who knows what they are talking about before you report anyone to the SEC. Otherwise, you could be damaging your position before you even start.

For a free consultation please call (949) 825-5210 or email at RRudolph@Rudolph-Law.com. The opinions stated above do not constitute legal advice nor create an attorney-client relationship. They are offered for general infomration purposes only. Legal advice can only properly be given after a qualified attorney has reviewed the available information.

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Posted

In addition to a shareholder and determination of ownership suit, it sounds like you may have to add counts for breach of contract and civil theft. Check your state's law, or the law of the state that controls your shareholder status, whether civil theft carries a treble damage. With treble damage, if you win you get triple damages, sometimes in addition to the actual damages. But, civil theft is harder to prove than a traditional contract lawsuit. It's sometimes worth doing because the prospect of having to pay back triple what they stole may make them give in.

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Posted

You should hire a business litigation attorney as soon as possible to protect your rights. An attorney may be able to negotiate with them prior to filing a complaint and temporary restraining order to stop the sale pending the out come of the litigation. You have very little time to negotiate or stop the sale so do not wait.

Barron Law Corporation Sacramento & San Francisco. 916-486-1712 or 800-529-5908. Email Deborah at: deborah.barron@lawbarron.com No attorney client relationship is created by this answer.

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Posted

Have you filed a complaint with the SEC? I recommend doing that immediately.

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7 comments

Bryant Keith Martin

Bryant Keith Martin

Posted

I rather doubt that he SEC would be interested, since this does not sound like a public company. The CA Dept of Corps might help, but I think your best bet is a private corporate litigator.

Karren Melinda Kenney

Karren Melinda Kenney

Posted

I have had a few clients charged with criminal fraud in California AFTER an SEC action was filed and litigated. It wouldn't hurt to contact them.

Karren Melinda Kenney

Karren Melinda Kenney

Posted

I have had a few clients charged with criminal fraud in California AFTER an SEC action was filed and litigated. It wouldn't hurt to contact them.

Karren Melinda Kenney

Karren Melinda Kenney

Posted

I have had a few clients charged with criminal fraud in California AFTER an SEC action was filed and litigated. It wouldn't hurt to contact them.

Karren Melinda Kenney

Karren Melinda Kenney

Posted

I have had a few clients charged with criminal fraud in California AFTER an SEC action was filed and litigated. It wouldn't hurt to contact them.

Karren Melinda Kenney

Karren Melinda Kenney

Posted

Forgot to mention my clients were selling investments in PRIVATE companies, not public.

Asker

Posted

Yes, a private Co. I started writing the SEC 1 yr ago + updates. I sent them a letter last week. Gotta wait.....

Posted

You are fortunate to be in California, which has probably the most shareholder-favorable precedents of any state. Unlike most states, in CA the majority shareholders owe a fiduciary duty (the highest) to the minority, based on the Home Savings & Loan case in the CA Supreme Court, in which the majority tried to deprive the minority of the benefit of a deal benefiting the majority only. (Sorry, I’ve forgotten the name of the case, but every CA corporate litigator knows it.) You don’t need to worry about contract damages etc. You should win easily based on the facts you’ve recited and the decision in that case. Ms. Barron is right, though; you must act fast. Get a good corporate litigator and try to get him on a contingent fee basis, so there is no fee if there is no recovery. My guess is that they will be happy to get the case if there are enough dollars involved. (You don’t state expressly that this is a corp, but it must be since only corps have shares and a board. If it’s an LLC, it might be a stretch.)

DISCLAIMER—This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California. (Bryant) Keith Martin sbbizlaw.com

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1 comment

Bryant Keith Martin

Bryant Keith Martin

Posted

The above works if you have a CA corp. If you formed the corp under Delaware law, as many do, you will find the opposite attitude. DE corp law tends to favor management over the minority S/Hs. You may be able to overcome this if most of the corp's assets and shareholders are in CA. CA has a quasi-foreign corp concept that says on some issues, CA law applies to suits against a nominally foreign corp. Best of luck!

Posted

Regrettably, your inquiry sheds more heat than light. While a consultation with a good business lawyer is warranted, I'd recommend that before you bring this to an attorney, you assess what you have and what you don't.

The offer and sale of securities is a well legislated and regulated area of law. The owners of the company may have run afoul of various state and federal statutes and regulations when they raised the capital with which they developed this mystery product. Unfortunately, your question provides me with no insight as to what has been done.

Odds are that your documents and communications will tell a story. The question is whether your story has evidentiary value or is merely an allegation If it's just you asserting X, Y and Z with no context or response, it might as well be a bunch of blank paper. You've indicated that they've ignored you - has that always been the case? Do you have documentation of the past corporate dealings, the transition from the old company to the new? Did they give you a prospectus or anything else when eliciting your investment? Is there any kind of purchase or investment agreement between you and the old company? Did you execute a confidentiality agreement with the old company? Are there any patents or trademarks for which they have applied? Did they ever respond to any of your emails? Do you have any witnesses to representations that they made to you about the nature or term of your interest in the company? Even if you're the biggest investor, it may be the case that 50,000 Elvis fans can't be wrong. Have you gathered other similarly situated individuals?

Sorry, more heat than light elicits more questions than answers. Good luck!

When I respond to a question posted on Avvo, I provide information for a general purpose. In reviewing my answer, you are specifically warned that your use of, or reliance upon any response that I provide would be a bad idea. I do not have all relevant background or facts related to your matter, and am not in a position to give you legal advice. Further, your review, use of, or reliance upon any response by me does not establish an attorney-client relationship between us and does not qualify as a legal consultation for any purpose.

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Posted

You should contact a local litigation attorney who will meet with you, review your documents and give you an honest assessment of your case.

Without reviewing your records nobody can - or should - give you any indication of whether you have a good case.

For a free consultation, please call (949) 769-3610. The information presented on this site is not intended as legal advice. Neither receipt of information presented on this site nor any question, answer, message or other electronic communication sent to Jame P. Mascaro or Mascaro Law, A Professional Corporation through this site will create an attorney-client relationship, and no such question, answer, message or other electronic communication will be treated as confidential. No user of this site should act or refrain from acting on the basis of information on this site without seeking legal advice from his or her own counsel in the relevant jurisdiction. Jame P. Mascaro and Mascaro Law, A Professional Corporation expressly disclaim liability with respect to actions taken or not taken based on the contents of this site, or any question, answer, message or other electronic communication exchanged on this site.

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Posted

These types of equity cases are complicated. You will have to demonstrate your equity interest in the new company. The e-mails that you discuss are good evidence, and are similar to ones I used last year to win a similar sort of trial in Orange County.

I disagree with my colleagues who discussed California laws regarding equities or filing complaints with the SEC. The SEC and most California securities laws are irrelevant unless the company is a public company, which, given your short description, I doubt. Few laws regulate investing in small, closely-held companies which aren't issuing public stock.

You will want to consider acting quickly, such as getting an injunction filed to stop the sale of the invention. This may give you some leverage to bring them to the negotiating table. Alternatively, you could consider waiting until after the sale of the invention so that the value of the sale is known, and the value of the company is more readily ascertainable.

I've done a number of equity cases, and I have a particular interest in them, so I hope this information is helpful to you.

Sincerely,
Craig T. Byrnes
310-706-4177

Disclaimer: Please be aware that I am not offering legal advice, nor forming an attorney-client relationship with you. I am not representing you, nor doing anything to protect your legal rights. If you believe that you have suffered a legal wrong, take action before any statute or limitations expires, or your right to do so may be lost forever. Good luck in your legal matter.

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3 comments

Edward Zaryl Kotkin

Edward Zaryl Kotkin

Posted

I respectfully disagree. The inquiry does not provide enough information for any responder to be sure whether Corporations Code 25110 applies to a sale of a security in the "old company" or not.

Craig Trent Byrnes

Craig Trent Byrnes

Posted

Thank you for your comment. I agree with you that there is not enough information to make that determination. Please note that I didn't say there was enough information to make that determination. What I said was that "most [not all] California securities laws are irrelevant unless the company is a public company," and I guessed that this is probably not a public company. Thank you for your response, though.

Edward Zaryl Kotkin

Edward Zaryl Kotkin

Posted

Thanks for taking the time to consider my thought. Happy New Year!

Posted

Cancellation of your shares as this company reorganizes is certainly not proper within any body of corporate law that I know of. The BOD would have to have a meeting of shareholders to do such a thing, or at the very least send some notice to the shareholders that such actions were going to be taken.

As a shareholder, you have a right to sue derivatively to make sure that the actions being taken are being done in the best interests of the company. The other issue you have is that if you do file a lawsuit, it is highly likely that the USAF could cancel the contract and permanently disqualify these people from conducting business with the government. "Poised" is one thing - having an agreement in place and firm commitment is another.

You not only need a securities attorney to assist you, but someone who also has familiarity with the defense contracting world. You will have to manage whatever you do VERY carefully given the disqualification risks.

The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.

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