Fall 2022 Newsletter
Dear Friends and Colleagues,
I hope you and your family are enjoying the always welcome Fall season. As usual, I would like to update you on some recent successes for our clients and our firm. You may recall some discussion in past newsletters of my case for a Chinese company suing to enforce an arbitration award against a Massachusetts company and its controlling shareholder. The case involved an air balloon company which entered into a contract to sell one of its large tourist-carrying balloons to my client. After a substantial deposit of over $1 Million was paid by my client, the balloon was never delivered, thus leading to a dispute and an arbitration decision in my client’s favor in the amount of over $1.4 Million.
The problem was that after the arbitration decision, the controlling shareholder of the selling corporation dissolved the company, leaving virtually no assets from which my client could recover its award. Our firm was consulted and brought a lawsuit in the United States District Court in Boston to confirm that arbitration award and furthermore, to charge the controlling shareholder with the full extent of the $1.4 Million of damages awarded against his corporation. After a trial this past month, the jury awarded my client $1.6 Million against the shareholder, including accrued interest since the arbitration award to the date of the verdict.
What were the reasons for holding the controlling shareholder liable for his corporation’s financial obligations?
We start with the proposition that corporations are valid ways of limiting the liability of investors by making the
corporation’s liabilities payable only by that entity, and not by the investors. But there are some important exceptions to this rule. One has to do with intermingling of assets between the corporation and its sole owner or small group of
shareholders. In our case, there was evidence that the shareholder, who was the founder and sole owner, director, officer and employee of his company, began making large transfers of the corporation’s bank funds to his own personal bank accounts almost immediately after my client paid its $1 Million deposit. These were done in large denominations of $18,800 or similar amounts at random times over the next two years – sometimes 3 or 4 times a month. The total of the direct bank transfers from the corporation to the shareholder’s personal accounts was in excess of $1,113,000. During a long and contentious pretrial discovery period, we also unearthed that the controlling shareholder used the corporate credit card for making what appeared to be numerous personal purchases. A
corporate credit card is normally used for the corporation’s business expenses.
Our courts have ruled that where a controlling shareholder misuses the corporate assets for his own personal benefit and essentially treats the corporation and its funds as an extension of himself, the courts will “pierce the corporate veil” and hold the individual liable for his corporation’s unpaid liabilities. In our case, we obtained verdicts on three separate counts: the intermingling of assets resulting in “piercing the corporate veil”; the “fraudulent transfers” of funds from the corporation to the individual shareholder in violation of the Massachusetts Fraudulent Transfers Act; and for good measure, a finding that the shareholder’s secret manipulations with his corporation were
“unfair and deceptive practices” in violation of the provisions of a unique Massachusetts statute known as Chapter 93A. This last finding allows the Court to assess and impose on the defendant shareholder the attorneys’ fees and costs incurred by our client so that it can be “made whole” for its losses, including the $1 Million deposit, the loss of interest over the past four years, the attorneys’ fees it had to pay, and the substantial out of pocket costs it incurred for expert forensic accounting analysis and testimony at the trial. It was a well- deserved win for the client.
During the last six months I also represented a long-time client in a much more modest but important insurance claim for flooding damage to her home. The amount of the claim was over $30,000, but the insurance company offered only a fraction of that in settlement despite the fact that its own expert (as well as my client’s) appraised the damage in the higher amount. This is unfortunately not an unusual scenario: some insurance companies are happy to take your premiums, but when it comes time to pay for a loss, they oftentimes make low ball offers. Most people, unsure of their rights or the true value of the loss, are likely to accept whatever they can get from their insurer, although their actual repair costs are often much higher. However, my client wisely hired and was assisted by a independent public appraiser to further evaluate the damage on her behalf and to deal with her insurance company, whereas most
claimants are on their own in arguing with the insurer. Additionally, many homeowners are faced with the financial
Catch-22 of having to make the needed repairs with insufficient funds available until the recalcitrant insurer agrees to make its payment – but only after the homeowner accepts its low offer and signs a release of all claims.
Large insurance companies know that they, with attorneys on retainer, are better able to bear the burden of litigation expenses than a homeowner or consumer. This was one of the reasons why Massachusetts passed its Chapter 93A and the related Chapter 176D applicable to insurance companies. As discussed above, Chapter 93A makes “unfair and deceptive practices” against consumers or fellow business people illegal. Chapter 176D makes it illegal for insurance companies to engage in unfair insurance settlement practices. A violation of these provisions can lead to the award of two or up to three times the amount of the actual compensatory damages suffered by a
claimant, plus the award of reasonable attorneys’ fees and litigation expenses.
So, it was with the specter of a Chapter 93A and 176D action that I could successfully convince my homeowner’s
insurance company to “do the right thing” and settle the case for the fair measure of damages to her home.
I have handled cases in other states with the permission of their courts, and although other states have consumer protection and anti-fraud laws, to the best of my knowledge no other state has a statute providing for multiple or punitive damages for such unfair or deceptive activities in commercial dealings. If any readers of this newsletter are aware of any, please let me know.
At long last, the receding of the COVID-19 pandemic has made it possible to return to our usual social and collegial
events. I recently attended several interesting events and have the photos to share with you. Over the summer I attended the Annual Dinner of Battery Dance in New York City, which presents dance programs and travels around the world to train dance instructors working with young dancers.
At the end of my trial last month, I attended my 50th Harvard Law School Reunion in Cambridge. Attached is a photo of me with my classmate, former U.S. Senator Larry Pressler of South Dakota.
As always, we continue to practice in a wide range of legal areas, including corporate, business and commercial law, trials and appeals, real estate issues, employment, discrimination, divorce and university law. If you have any questions about our areas of practice or about any legal matters where we can be of assistance to you or someone you know, please do not hesitate to call on me.
I hope you, your family and colleagues have a happy and healthy Holiday Season and best wishes for the New Year!
Kindest personal regards,
Marc Redlich
Marc Redlich
© Marc Redlich, 2011. All Rights Reserved