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Suing a Family Member Is Never Easy

Handling business partner disputes often means being involved in family fights; it’s simply the nature of the business.  While not all closely held businesses are family-owned, many are.  And family-owned companies tend to have more problems between business partners than other types of companies, since interpersonal issues frequently mix with the business end, often to toxic result.

If you are reading this and are having your own issue regarding a family-owned business, then this is nothing new or unexpected.  Whether the majority shareholders are cheating you out of money that should be coming to you, lying about income, over-compensating themselves, or whether you have been oppressed because the majority shareholders have terminated your employment (which may be actionable oppression under certain circumstances),[1] the thought of suing your own family members may be unnerving.

Of course, there is no one “right” answer regarding whether you should sue family members over mismanagement or oppression regarding a family business.  The repercussions to filing a lawsuit against your business partner who is a family member may be endless.  It could alienate you forever from the family members you sue and force others in the family to choose sides.  On the other hand, if the majority shareholders who are treating you unfairly and oppressing you just happen to be family, one could argue that their status as family members should not insulate them from liability.

The experience of one particular minority shareholder client illustrates the point.  After learning that his family members were taking excess compensation in the form of bonuses that had nothing to do with performance, and everything to do with profitability, and in which he wrongfully never shared, he actually waited over two years to do something about it.  Then, after filing suit, one majority shareholder argued that my client should not be permitted to sue because he waited so long after learning of the improper excess payments.

That minority shareholder/client decided, at the end of the day, that being “ripped off” by family members was even worse – far worse, in his mind – than being victimized by a non-relative.  He felt he could never live with himself if he failed to take action simply because the majority shareholders were related to him.  To those family members who blamed him for “tearing the family apart,” he decided to let the complaint we filed in court speak for itself.  He simply furnished a copy to any family member who accused him of turning against a blood relation.  The approach actually worked.  The filed complaint explained in a logical, coherent fashion what the majority shareholders did to him, and turned sympathy away from the ones who were actually taking improper payments.  After a few family members saw what improper actions the majority shareholders had taken, the complaints ceased, and the family “war” at least stopped escalating.

Filing a lawsuit against your business partner who happens to be your brother, cousin, in-law, or even a parent is never easy.  But sometimes it is the least bad choice among several bad choices.  And there are ways of dealing with the fallout.

[1] See article posted here on September 2, 2008.