“Only good news” – how disciplined governance and litigation preserved a legacy family enterprise
Christian Scali & Jeffrey W. Erdman
by Christian Scali & Jeffrey W. Erdman
A multigenerational family enterprise faced a governance crisis for a legacy portfolio company structured through trusts and closely held entities. The well-meant design that spread control among several of the fractured family members lacked practical safeguards, which allowed unilateral obstruction by one family member who turned process into leverage.
We protected our clients’ position and kept the business intact long enough to close a clean sale with a structured settlement that gave each beneficiary direct control over their share and limited the opposing party’s reach. At the close of five years of litigation, our team reflected on the value of the client/attorney relationship and the importance of sound corporate structuring to mitigate risk.
High stakes
While benevolent in intent, the original structure of the trusts and estate created opportunity for obstruction. What followed was a slow burn crisis. Decision making stalled. Operational continuity frayed. Reputational risk migrated from the boardroom into the market.
Against that backdrop, the human dimension mattered as much as the legal one. The opposing side’s strategy was clear – to stretch timelines and sap morale and appetite for defence. Our clients needed unwavering alignment on objectives, and the confidence that the process, however protracted, would not outlast their resolve. One refrain was a constant: on each call our clients asked for “only good news”, a north star, whether a decisive ruling or the next necessary step, to keep them in the long and gruelling fight.
Structural vulnerabilities
The company’s four trusts were managed by two equally powerful trustees, such that no one person had majority control. That design was well intentioned, but it enabled a single director to act without effective check. After terminating our client’s operational roles in this company, and seizing sole operational control, he leveraged the deadlock at the shareholder level to prevent corrective action. Governance stalled and decision gridlock followed.
The dispute materially reduced the company’s value, approaching fifty percent. To protect the enterprise and enforce rights, we filed a derivative action on behalf of half of the shareholders, and our clients also brought individual claims. In a related, but corollary proceeding, the beneficiary of one of the trusts controlled by the uncooperative director sought a court order removing him as trustee and giving control of that trust’s share to a different family member. The goal was to remove the uncooperative director’s control over 50% of the shares to restore proper corporate control, secure access to information, and stop the abuse of position.
Tactics
Advisory efforts came first, focused on governance and information rights. When that proved unworkable, we moved to early mediation to test whether the dispute could be reconciled without court intervention. Once litigation became unavoidable, we unified the claims and aggressively pursued multipronged legal tracks.
The opposing side leaned on delay by stretching hearings, contesting routine actions, and pursuing defective appeals. We countered with disciplined docket management and targeted motions to keep the matter moving. Our team managed the probate and civil suits concurrently, and supported our clients through an exhausting conflict with a family member.
Throughout the process we hunted for opportunities to resolve the matter, bringing on expert mediators and family succession experts to help reach consensus, while simultaneously advancing our clients’ litigation position – finally finding a satisfying resolution.
Despite the significant delays forced into the proceedings, persistent trial preparation made the risk profile plain to the other side and this put us on a credible path to settlement discussions.
Settlement
The opposing party saw the writing on the wall and the matter was concluded with an asset sale of the core business to a third party.
Proceeds were distributed through a structured settlement that limited the opposing party’s involvement with related entities. Individual trust beneficiaries received direct control over their share of the distribution, which removed points of friction and clarified authority going forward.
We also passed amended bylaws and a revised shareholders agreement for the remaining corporate entity which included the appointment of a third (neutral) corporate director. These changes improved control at the board level. With ownership and governance aligned, the family was able to focus on planning rather than dispute.
Lessons
Better structure does not necessarily remove disagreement. Rather, it removes the leverage of obstruction, shortens the path to resolution, and protects value. When control is dispersed through trusts and closely held entities without clear authority pathways, obstruction becomes easy. Corporate structuring can be one of the most effective safeguards against costly litigation.
Disputes within families are never just about money. When those relationships fracture, the challenge isn’t only legal, it’s deeply human. Our role was to bring clarity and stability to a situation that could have unravelled generations of work and trust.
In the end, success rests on restoring peace of mind and ensuring a legacy could endure without conflict.
XLNC member firm Scali Rasmussen, PCLos Angeles, CA, USAT: +1 213 239 5622Legal, Corporate Finance
Christian Scali has a diverse practice that includes advice and counsel and complex and high stakes litigation. His clients are in a variety of industries, including restaurant and hospitality, property management, entertainment, clothing manufacturing and ecommerce, but the majority of them are in the retail automotive industry. Contact Chris.
With three decades of litigation experience, Jeffrey W. Erdman is a seasoned trial lawyer who represents clients in state and federal courts throughout California. His practice encompasses complex disputes across the business, real estate, and employment sectors, with a particular emphasis on defending and advising auto dealer groups. Contact Jeffrey.
