Sour Grapes and the Grocery Business Collide

Lund et al v. Lund et al is a case that compels any closely-held company to think about their buy-sell agreements, the terms of any trust that owns the company stock, and the implications of litigation with shareholders. In this case, a beneficiary of a trust wanted to cash-out of the family businesses. The family business includes the Lunds-Byerly’s high-end grocery chain. The court determined that the family businesses are worth $191.5 million and that the trust were to be paid $45.2 million for their 25% share. The court went on to set the terms of the buy-out. Their are many lessons to be learned from this case. But what I find particularly concerning is how the company financials are now a matter of public observation. The decision reviews the company revenue, the company profit margin issues, the competition, how the competition is affecting revenue, pension issues and obligations and other matters that most closely-held corporations would rather keep private. I suspect that the company was forced to allow the matter to go to trial and it would not surprise me if an important strategy for the plaintiff’s was to make the company’s private information become public through a trial if the company would not settle on a more favorable buy-out amount. But now the deed is done. The company must pay and the information is public. Whether it came out better for either party is tough to tell. But can anything be done to prevent this from happening? In fairness, you can never prevent litigation. When someone is determined to pick a fight it will probably happen. But the case serves as an important reminder to have buy-sell agreements that are fair and reasonable. It serves as a reminder to contemplate provisions in a trust that protect trustees from this type of litigation and allow trustees the ability to manage closely-held stock. On the other hand, it is important to have trust terms that prevent a rogue trustee from acting improperly. You don’t want a buy-sell agreement that bankrupts a company with buy-out payments but you don’t want a buy-out that is so favorable to the company that this type of litigation is sure to follow. Your trustees will have to deal with these family conflicts and will be accused of breach of fiduciary duty. Without some protection for the trustees it may be hard to get quality trustees to take the job and to do it well. In no way am I implying that any of the parties acted improperly in this case. The case simply serves as a reminder that succession planning requires vigilance and review to try to avoid the type of conflict that happened here.

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About Robert McLeod

I can help you fight a will, fight a power of attorney, will contest, fight a guardianship, fight a conservatorship, create or revoke powers of attorney, wills or revocable trusts. What is probate? I can answer that for you. I can help you with all your probate needs.
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