Watch the Calendar When Considering Claims in Connection With a Family-Owned Business

by Murtha Cullina

Shareholders of family-owned businesses sometimes assert claims of misconduct against their co-owner relatives.  These claims can take the form of oral complaints or written claim letters.  However, actual lawsuits based on such claims must be timely filed in court or else they may be barred by the applicable statute of limitations, leaving the shareholder with no ability to pursue the claims.  A United States District Court in Ohio recently dismissed certain claims by a sister against her brother in connection with a family-owned business because, the court ruled, the sister waited too long before filing suit.

In Joseph v. Joseph, the court addressed plaintiff, Marie Joseph’s claims concerning Columbia Oldsmobile Co., a corporation that owned auto dealerships and held real estate.  The company had been started in 1938 by Marie’s father, George Joseph.  All seven of George’s children, including Marie and her brother, Ron Joseph Sr., became shareholders of the company. After George’s death, Ron became Columbia’s CEO.  Marie claimed that after George’s death, their mother, Najla Joseph, who also owned shares in Columbia, intended to disinherit Ron from Najla’s shares in the company.  Marie alleged that, upon learning of his mother’s plan, Ron then operated Columbia in such a way that “created a financial crisis for Najla’s future estate” and thus allowed Ron to acquire Najla’s shares.  Marie claimed that once Ron gained control over Columbia he acquired “personal benefits not otherwise available to Marie as a minority shareholder.”

In addition, Marie alleged that Ron and his sons carried out business transactions that diverted assets and income streams away from Columbia and to other entities owned or controlled by Ron or his sons.  Marie further alleged that Ron and his sons misappropriated corporate opportunities for themselves that should have been available to Columbia.  Finally, Marie claimed that Ron hid all this activity from her by “fraudulently telling her that all family business assets were owned by Columbia.”

Marie filed her lawsuit in April, 2016.  Among other claims, Marie asserted claims against Ron for breach of fiduciary duties arising from his alleged misconduct.  Ron defended the claims in part by arguing that Marie’s claims were barred because they were filed after the applicable statute of limitations had expired.  According to the evidence Ron presented to the court, Marie had received information in the course of prior litigation in 2008 concerning the guardianship of Najla, which demonstrated that Ron owned several auto dealerships that were separate from Columbia.  There also was evidence that Ron’s separate dealership interests had been disclosed even earlier, in 2000, in response to a request by Najla’s lawyer for information regarding Columbia.

In ruling on Ron’s summary judgment motion, the court noted that, in Ohio, the statute of limitations for breach of fiduciary duty claims is four years and the time to bring such a claim starts to run when the alleged breach actually occurs, rather than when it is discovered.

The court thus concluded that, to the extent Marie’s breach of fiduciary duty claim against Ron was based on any acts or omissions before April, 2012 (4 years before the April, 2016 filing date), the claim was barred by the statute of limitations.

The Joseph case serves as a reminder that parties must be vigilant in pursuing any claims they believe they have.  Statutes of limitations will vary from state to state and depending on the type of claim, so a claimant will need to check what state’s law may apply to their particular situation in order to ensure that a lawsuit is timely filed.  But regardless of how short or long a statute of limitations may be, failure to timely file a lawsuit may result in forfeiture of otherwise valuable rights to pursue recovery for claimed misconduct.  A potential defendant also should be mindful of the calendar when faced with a potential claim and should try to identify the date of any act or transaction that might be challenged.  In particular, even if a claimant has raised concerns about certain acts or transactions orally or in writing, a defendant may still be able to obtain dismissal of a lawsuit based upon such claims if any actual lawsuit is filed after the applicable statute of limitations has expired. All parties should recognize that, even in family-owned businesses, where there may be decades of dealings between and among the family members and the business, courts will still apply statutes of limitations as appropriate to prevent the litigation of time-barred claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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