Articles Posted in Corporate Transactions

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The case is Grayson v. Michael J. Korst, P.C., and Michael J. Korst, 16 c 1297 N. D. Ill.  Grayson and his business partner were represented by the Defendants in a transaction in which Grayson and his business partner sold the business (a Domino’s franchise) to a buyer. Grayson alleged that Korst had a conflict in that he represented the company and the two partners and that their interests conflicted. Grayson claimed that Korst failed to notify him that he was entitled to a share of the sale proceeds.

There was also evidence in the record that Grayson was going through a divorce and tried to claim that his interest in the company had a negligible value so that he would not have to make payments to his soon to be ex-wife.

Ultimately, because the case involved complicated conflict issues, Grayson had a duty to obtain an expert. Because he had no expert, he had no ability to explain how the lawyer’s performance failed to meet the standard of care. The lawyer had had both business partners, including Grayson, sign a waiver of any potential conflict, which further weakened the case.

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It is unfortunate that this case was not published, but it is still worth considering. The plaintiffs sued their lawyer who had drafted a Stock Purchase Agreement under which they sold their stock in a privately held company. When the company was sold, there was litigation pending. The parties negotiated an indemnification provision relating to the litigation. The court describes the facts in this brief summary:

In July 2011, respondent-attorney Joseph A. Turman prepared a stock purchase agreement for the sale of appellants James and Elizabeth Leach’s company, IDA of Moorhead Corporation, to SNAPS Holding Company. At the time of the sale, the Leaches were defending a wrongful-termination lawsuit brought by a former employee, Reed Danuser. The purchase agreement provided that SNAPS was aware of the litigation, and, subject to the indemnity provision in the purchase agreement, agreed to indemnify and pay the expenses and judgment associated with the lawsuit. The indemnification provision in the purchase agreement stated: “[SNAPS] shall hold and indemnify [the Leaches] harmless from the claims of Reed Danuser up to the sum of $100,000.00. In the event the amount necessary to resolve the issues with Reed Danuser exceed[s] $100,000.00 [the Leaches] shall be responsible for that portion.”

Unfortunately for the plaintiffs, the litigation resulted in a judgment exceeding $800,000. They then sued their attorney. The court dismissed the complaint holding that the plaintiffs clearly understood, and admitted they understood, that they were liable for any amount in excess of $100,000. Thus, they could not allege damages and had no lawsuit. Case dismissed. The dismissal was then affirmed by the Court of Appeals.