Family Business Woes

Family businesses are everywhere. They often start with an idea, a part-time job, and a transition to full-time work. Running a business involves understanding a myriad of employment laws, tax issues, and filing requirements, all on top of simply trying to make a profit. More often than should occur, family run businesses fall short in one crucial area – transitioning from current to successive owners while instilling that founder mindset in second or third generations. The recent case of Carlene Guye Judd v. Carlton Guye, et al. highlights these issues.
In short, the parents started a business in 1961. They had two children. In 1995, the parents incorporated the business. One year later, the parents and both children entered into a series of agreements, whereby all shares in the company were sold equally to the two children, with the company making the required payments.
In 2013, Carlene Judd, the daughter/sister, became concerned that Carlton Guye, the son/brother, was misusing company funds for his own personal benefit. Ms. Judd sued her brother to recover the misused funds and to judicially dissolve the company. These issues went to trial and Ms. Judd won. The court ordered the company dissolved and found that Mr. Guye misused company funds. The parents appealed, but neglected to have the order stayed (halted) during the pending appeal. By the time oral argument took place, the company's assets were fully liquidated.
The court of appeals never weighed in on the merits of the case because it found that the parents' failure to seek a stay made moot the entire appeal. Compounding the founding parents' problems, the court of appeals additionally found the appeal frivolous and awarded Ms. Judd her attorneys' fees in defending against the appeal.
Without weighing in on whether the case was lost due to procedural or substantive reasons, it can't be overlooked that the family business, which existed for four decades, is now shut down completely. Readers are left to ponder whether the involvement of trusted legal and financial counsel earlier in the company's history may have helped to safeguard against the problems of greed which apparently afflicted one of the second generation owners. Unfortunately, absent such safeguards, litigating this type of dispute can be costly and involves an understanding of both corporate and trial law. In the end, it is unclear if this case saw any real winners.