11 Jul

Family Food Empire Breaks Chains After Family Business Dispute – Part I, No One Should Watch How Link Litigation Is Made

By Kevin J. Palmersheim

July 11, 2012

Ferris Bueller’s Day Off may have solidified Abe Frohman’s status as the Sausage King of Chicago, but he’s got nothing on the Sausage “Links” of Minong, Wisconsin. A contentious family business dispute resulted in a complicated court case with competing allegations that family members were breaching their fiduciary duties. The jury tried to slap the hands of both sides, granting what it believed to be offsetting $5 million punitive damages awards — the legal equivalent of sending each of the feuding family members to their room for a much-needed time out. Unfortunately, the lawyers’ mistakes in court and an ambiguous shareholder agreement led to more prolonged legal challenges after trial and on appeal, and which ultimately undercut the jurors’ good parenting judgment.

The Link family owns various companies that produce and distribute meat and cheese snacks. The controversy centered on a dispute between Jack Link (joined by his son, Troy) on one side of the dispute, and his other son, Jay, on the other side. Jack and Troy terminated Jay’s employment after a number of conflicts among them. The next month Jack and Troy filed suit asking a court to order Jay to surrender his corporate shares pursuant to a buy-sell agreement the parties had previously signed. (A buy-sell agreement is a contract among co-business owners, and a more detailed explanation of buy-sell agreements and their application to this case is in Part II of the blog on the Link Litigation.)

Given the history of family squabbles, it was no surprise that Jay was not ready to give up his snacks and believed he was entitled to a bigger share of the lunchbox. Jay filed counterclaims alleging that his dad and brother had each engaged in a breach of fiduciary duty owed to Jay as a minority shareholder, and that they were squeezing him out in an effort to buy Jay’s shares at a discounted price.

Jack and Troy countered Jay’s name-calling with the sandbox equivalent of “he hit me first,” by adding a claim that Jay breached his fiduciary duties to the company and had been acting in his own self-interest.

After a 6 week jury trial, the jurors evidently concluded that the tantrums had gone on too long, because they awarded essentially off-setting judgments. Because Jack and Troy had continued to receive their salaries, the jury awarded Jay his salary from the day he was terminated. They also imposed $5 million in punitive damages against Jack and Troy, which is the closest to spanking that a jury can get. On the claims against Jay, the jury awarded $1 in actual damages, plus $5 million in punitive damages to be paid by Jay. It was clearly the jury’s intent to send a strong message to the quarrelsome kin.

I wish I could tell you that the family members were each sent to their room without supper (or snacks), and that the offsetting jury verdicts evened out this family shareholder dispute. Unfortunately, both Jack and Jay (and their attorneys) botched their post-trial motions requesting a reduction in the punitive damages awards, which led to an uneven result.

It is common for parties to file motions to reduce the amount of punitive damages awarded by a jury. Punitive damages are imposed infrequently by juries, and when they are, the dollar amounts typically do not raise one’s eyebrows as being excessive. Although there are many stories about outrageous and frivolous jury verdicts, our experience in both suing and defending on such claims is that juries generally use rational measures to impose jury verdicts based on the evidence before them (juries sometimes get it wrong, but are rarely outrageous). However, on occasion punitive damages are awarded, and it is quite typical for a party to request a reduction. In the event that punitive damages far exceed the amount of compensatory damages, in almost all instances the judge will reduce the amount of punitive damages (usually to an amount no more than three times the total compensatory damages awarded on the claim). In order to get that reduction, the Wisconsin Statutes require the party to file a motion within 20 days after the verdict. Wis. Stats. §805.16.

It is important for parties to hire attorneys who know the local procedures, including court hours. Typically, the clerk of courts office is most counties closes no later than 4:30 p.m. In the Link case, Jay filed his motion at 4:32 p.m., two minutes after the close of usual business hours. However, the clerk of court accepted and stamped this motion as being filed on that date.

Meanwhile, on the last day for motions, Jack’s attorneys mailed his motion from Chicago and it did not arrive until a day later. The judge initially tried to treat both parties equally and allowed each motion to be considered as timely filed. The judge reduced the punitive damages awarded to Jay to the amount of his unpaid wages ($736,000), and reduced the punitive damages awarded to Jack to match the $1.00 in compensatory damages.

When the case was appealed, however, the Wisconsin Court of Appeals determined that under the statutes, the clerk of courts had discretion to accept a motion filed two minutes late as being timely because it was filed the same day. However, there was no discretion in finding a filing a day late as being timely. The result was that Jay’s request to reduce the punitive damages against him was granted, but Jack’s request to reduce his $5 million damage award was disregarded. So Jack had to pay $5 million in punitive damages, and Jay only paid $1.00.

The litigation lessons from this case are important for anyone who is hiring an attorney for litigation, whether it be a shareholder or partnership dispute, or a family business dispute. First, it is always best to try to negotiate and mediate family business disputes. Not only is trial expensive, but juries and judges are not always predictable. We have a wealth of experience in dealing with both judges and juries, and we typically have a pretty good idea of the range of likely or possible outcomes once we have a good understanding of the facts and legal issues. Even then, there is always a little bit of a wild card.

Second, it is not always possible to reach an agreement without going to trial. Sometimes the opposing side is simply not acting reasonably, or a party is asked to take too much of a compromise in order to accept a settlement. Under those circumstances, it is important to hire attorneys who are knowledgeable both in terms of drafting contracts and agreements, including settlement agreements, but also in representing his or her client in court.

Most importantly, it is important that the parties and the attorneys know what the law is, and what the risks are that they are facing in any litigation. Although the jury tried to do what was right in this case by evening out the damage awards, a mistake by one side tilted the playing field considerably. Moreover, even without the late filing by Jack, the law regarding punitive damages limited the jury’s ability to slice the cheese evenly (by matching punitive damages awards) because the punitive damages had to be related in some fashion to compensatory damages (meaning that an award of $1 in compensatory damages ordered to be paid by Jay would necessarily mean that any punitive damages that he would pay would be limited to between $1-3.

It appears to me that the Link case represents a failure by the parties and their counsel on at least a couple of these grounds – not to mention the issues regarding shareholder oppression and the buy-sell agreement which are covered in Part II of this blog entry. And due to these poor choices, not even the good parenting judgment of the jury could save Ferris… er, I mean the Link family.”