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FLCORPLAWYER
FLCORPLAWYER, Attorney
Category: Business Law
Satisfied Customers: 4618
Experience:  23 Years business & securities law, NY and FL bars. SEC all states.
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This is rather a long timeline of events, so I will try to

Customer Question

This is rather a long timeline of events, so I will try to keep it as brief as possible. I would like to receive a fresh opinion on this problem and ideas on resolution.

Background:
I am the majority shareholder of an LLC in there service industry. We have been open since December of 2009 and so far the business has done well. The LLC was originally formed with 5 shareholders and I was the majority shareholder and principal managing member. In October 2010, we began negotiations to buyout 2 Shareholders (a husband and wife). The buy-out agreement was finalized on April 8, 2011 and filed with the State of Texas.

Pre-Opening:
The build-out or the construction phase, was a long process. We did most of the work ourselves and took a little over two years to complete. About a year prior to opening (~Fall 2008), we attended a Restaurant Auction. At the auction, the company was liquidating all of their assets, i.e. equipment, decorations, smallwares, fixtures, etc. We did really well at the auction and received a lot of equipment at an extremely discounted price compared to the fair market value. Obviously, we were buying used equipment and the list price was for new equipment, but we all considered ourselves really lucky to get such as good deal.

Since we were still in the construction phase, the equipment was not needed immediately. As a result, the equipment was stored at a warehouse in Houston, where another shareholder was employed. As we got closer to opening, the shareholder would bring the equipment from his warehouse and we would install it. After opening, additional equipment was moved from the warehouse and installed, but again only as needed. We eventually installed about ½ of the equipment and the rest remained in storage.

The Problem:
The shareholder’s who wanted to sell their shares of the LLC, were also the ones in control/possession of the remaining equipment. During the buy-out negotiations (Oct-Apr), the selling shareholders were informed via the LLC attorney, that we would only buy the shares at their asking price, if the equipment was returned. The LLC attorney was assured the equipment was still there and would be handed over once the buy-out agreement was signed. Based on this guarantee, we (the LLC) signed the paperwork to purchase the shares from the outgoing Shareholders.

On April 8, the agreement was signed and executed.

I immediately scheduled a time to pick-up the remaining equipment. I hired a moving company subsequently brought the equipment to a storage building. I was present to take inventory and quickly noticed that a large percentage of the equipment was missing. I immediately emailed the LLC attorney, who contacted the ex-shareholders.

The ex-shareholders informed the LLC attorney, via email, that he ‘disposed’ of the equipment months ago and he didn’t want this fact to slow down the buyout agreement. In his email, he basically said that at the auction some of the equipment was given to us and the LLC didn’t buy it. He then said in his email that he needed space in his warehouse and gave the equipment to a scrap man.

Prior to the buy-out agreement being finalized, the shareholders have misappropriated additional funds (stolen), this includes writing checks on the bank account and turning off the utilities to get the deposits. However, I and the remaining shareholders all believe that he has crossed the line this time. If the LLC went out to replace the equipment that was ‘scraped’,
LLC is looking spending around $6505 to $9500. This is a conservative estimate.

I have been in contact with the LLC attorney about possible solutions. The attorney feels that we are not going to get payment for the equipment. He also believes that any civil lawsuit would only cost the LLC more in legal fees than the value of the equipment, i.e. we would spend more than 6K in legal fees to pursue the matter.

I have contacted our local Police Department, but it appears that they are unsure on how to proceed. The police are thinking it is a civil matter.

So we are currently at roadblock for resolving this problem and the LLC believes this a criminal matter, i.e. we have the supporting documentation: 30 or more color photos, the invoice, LLC member statements, emails stating the equipment was all there in the warehouse and an email stating he disposed of the equipment.

I would like to get your opinion on how to resolve this and if we pursue criminal charges what do we need to establish with our local PD.
Submitted: 3 years ago.
Category: Business Law
Expert:  FLCORPLAWYER replied 3 years ago.

FLCORPLAWYER :

This is not a criminal matter. The other members came into possession of the property lawfully and there is a legitimate dispute as to how the property was liquidated. If you have receipts for all of the equipment, this is a good case for small claims court, at least up to the jurisdictional limit of the court.

Customer :

For my own knowledge, how would this be different than me taking a my company laptop home and selling it to my neighbor? It was in my possession, i own stock in the company, and I sold it when I didn't have the authority to do so. The problem I am experiencing is the other investors (shareholders) in the LLC want to pursue this matter, criminally or civilly. If it is not a criminal matter, then this means in civil court which means it will cost the LLC to do so.

FLCORPLAWYER :

The police will not become involved unless the people come into possession of the property unlawfully. After that, they consider it civil. You are saying one thing, and they are saying something else. Your best bet is a civil suit, and yes the LLC will have to pay.

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