Philadelphia 215.569.9701
New Jersey 856.547.4400
Malvern, PA 484.875.3159
www.JacobsLawPC.com

Attorneys Involved: Neal A. Jacobs, Matthew A. Cole, Samuel M. First, Christopher D. Wagner

Our client, the principal operator of a successful $25 million company on the East Coast, was in a mutually unhappy relationship with the company’s other three shareholders, who were based on the West Coast. Communication between the partners had failed. Unable to agree even on basic operational matters such as compensation, the four shareholders were unable to discuss increasingly crucial questions surrounding the future growth of the company and the need to adapt its traditional business model to an evolving industry.

As Jacobs Law Group’s shareholder relations lawyers investigated the backgrounds of all the shareholders, reviewed the underlying corporate documents, and audited the company’s financial records, a few key truths emerged.

First, it became evident that the shareholders effectively had agreed to ignore their disputes -- and any resulting growth of the company – as long as the company’s existing operations remained sufficiently profitable. Second, the shareholder agreements and other documents that established the company could provide the principal operator with leverage to wield against his erstwhile partners. Lastly, the financial audit revealed questionable actions by two of the three West Coast shareholders.

Equipped with this strategic information, Jacobs Law Group’s commercial lawyers helped the client develop a plan to frustrate the obstructionist behavior of the other shareholders without exposing the client to unnecessary risk or claims. By threatening or initiating litigation, Jacobs Law Group ramped up pressure against the other parties gradually, carefully avoiding any disruption to the business operations.

That pressure eventually led to negotiations for a purchase or sale of the company. The efforts of Jacobs Law Group successfully positioned our client to conduct a leveraged buyout of the other partners on favorable terms. The client repaid all required financing within two years, expanded the business, brought new products to market, and now enjoys a level of success that would not have been possible within the previous ownership structure.

Attorneys Involved: Neal A. Jacobs

Our client, the principal owner of a successful demolition and asbestos removal business worth about $10 million, had previously made his company’s accountant a partner in the business. Their relationship later deteriorated, however, and the partner left the company while retaining his ownership stake.

The former partner later opened a competing business and began using his stake in our client’s company as a basis for demanding access to financial records, proprietary information, and dividends.

Jacobs Law Group’s commercial law attorneys reviewed the records of our client’s company and conducted an investigation of the former partner.

Under our advisement, our client used the provisions of the Pennsylvania Business Corporation Law to execute a reverse stock split. The company’s stock was consolidated to a point that made the former partner’s stake equivalent to a fraction of a share of the company. Our client’s company then obtained a valuation report and used that report to determine a fair value for the former partner’s fractional share.

Because Pennsylvania law allows corporations to redeem fractional shares for cash, the company was able to force out the competing former partner – and remove his access to sensitive company information – with a single cash payment.

The forensic investigation by the Jacobs Law Group commercial lawyers further uncovered improprieties by the former partner in his maintenance of the company’s records. Our client’s ability to demonstrate these improprieties in court ended any further litigation between them.

Attorneys Involved: Neal A. Jacobs and Matthew A. Cole

The death of a founder is a sad and even traumatic event for any company. It should not, however, throw the company into chaos. When that happened to a Jacobs Law Group client, our corporate lawyers were able to save the company and the remaining shareholders’ value from oblivion.

The two founders of our client company had tried to plan for what would happen if one of them died. What they didn’t envision was that both of them would die within 11 months of each other.

Jacobs Law Group’s commercial lawyers determined that the deaths of both founders would bankrupt the company and wipe out the value of the remaining partners’ shares -- if the existing shareholder agreement were followed. That agreement was written around the assumption that the life insurance proceeds from the death of one founder would suffice to cover the costs of any resulting buyout. A Jacobs Law Group investigation determined that not only had the life insurance policies been improperly maintained – in insufficient amounts and with inappropriate policyholders – but that the company’s valuation had been exaggerated at the time of the shareholder agreement in order to justify the coverage amounts the founders wanted.

Presented with these findings, all but one of the shareholders agreed to treat the original shareholder agreement as invalid and to sell the company, distributing the proceeds and any other assets on a pro-rated basis.

The holdout against this reasonable solution was the estate of the first founder to die. In the estate’s view, the shareholder agreement amounted to a “first to die” lottery that should result in the estate receiving the full value of the company.

After months of negotiations and mediation with the estate yielded little progress, Jacobs Law Group and the client reluctantly pursued litigation. Jacobs Law Group successfully argued in court that the original shareholder agreement had been ignored, never enforced, effectively abandoned, and was thus invalid. Jacobs Law Group also persuaded the court to issue an order appointing a limited receiver with the authority to sell the company.

The company was eventually sold and the proceeds distributed equitably to its shareholders, as Jacobs Law Group initially had proposed.

Attorneys Involved: Neal A. Jacobs

Our client, an asset disposal company, had bid successfully for what promised to be a lucrative contract disposing of surplus assets for the worldwide operations of a multinational corporation. The job would require the disposal company’s team to travel across the world to survey, inventory, appraise and liquidate equipment and other property.

Unfortunately, soon after our client began the work, they discovered that there were far fewer assets to be disposed of than the contract and the corporation’s records had indicated. $20 million in anticipated profits never materialized -- our client could not even recover its costs for the project. The corporation had ignored the company’s numerous requests to be compensated for its efforts. At the time they contacted Jacobs Law Group’s commercial litigation attorneys, our client had run out of patience and believed they needed to sue the corporation to recoup their losses.

Litigation is expensive, and litigation against an opponent with the resources of a typical large corporation is often prohibitive. Jacobs Law Group’s corporate attorneys advised a more measured approach. Our team recognized right away that our client’s lost investment also amounted to a legal issue for the corporation. The same accounting inaccuracies that caused our client to lose money on the contract had the potential to cost the corporation an enormous sum of money in fines for regulatory violations.

Rather than take an adversarial stance, Jacobs Law Group saw an opportunity to arrive at a solution that would benefit both our client and the multinational corporation. Our team formulated a plan to document, country by country, the discrepancies between the assets on the ground and the surplus equipment lists. Jacobs Law Group then used its professional network to obtain an introduction to a board member of the corporation. That board member also sat on the corporation’s audit committee.

After speaking with Jacobs Law Group, the board member convened a conversation between our attorneys, the corporation’s general counsel, and our client. All participants quickly appreciated the serious nature of the issue. The corporation recognized the value of taking steps to quietly determine the extent and nature of its accounting deficiencies, allowing them to correct their books to reflect properly the value of their surplus assets.

The Jacobs Law Group’s solution was a genuine “win-win.” It enabled our client to recover a significant portion of its lost profits, prompted the multinational corporation to take corrective action on the accounting front, and was completed in a small fraction of the time that a lawsuit would have taken.

Press Releases

Jacobs Law Group Expands with Two Commercial Litigation Attorneys

Philadelphia business law firm Jacobs Law Group is pleased to announce that Richard “Dick” McElroy and Jeffrey C. McElroy, have joined the firm. With more than 60 years combined experienced, the father and son team have been highly successful at receiving results for leading businesses in litigation. Read More.

Events

Leading PA Business Divorce Attorney Neal A. Jacobs to Act as Faculty for PBI CLE ‘Business Divorce: Startup to Litigation to Resolution’

Jacobs Law Group Founder and Managing Attorney Neal A. Jacobs is acting as course planner and will present as part of a CLE on business divorce for the Pennsylvania Bar Institute. The program, “Business Divorce: Startup to Litigation to Resolution” will be held on Nov. 6 in Mechanicsburg, Nov. 8 in Philadelphia, and Nov. 13 in Pittsburgh. Read more...

Philadelphia
2005 Market Street, Suite 1120
Philadelphia, PA 19103
Tel: 215.569.9701
Fax: 215.569.9788

New Jersey
Five Greentree Centre
525 Route 73, Suite 104
Marlton, NJ 08053
Tel: 856.547.4400
Fax: 856.547.5499

email: info@jacobslawpc.com