Calling “do-it-yourself” legal documents and related services popular is a gross understatement. While hiring lawyers is something that most try to avoid at all cost, the bottom line is that everyone has a need for legal services at some point in time. The unfortunate reality is that lawyers spend as much or more time (and people end up spending more money) fixing problems that could have been avoided in the first place as they do helping things get off on the right foot at the beginning.
Once in a while a dispute makes its way through the court system and we get a legal opinion written by judges that help us illustrate that point and the old idiomatic expression: an ounce of prevention may be worth a pound of cure. Enter the case of Essential Homecare, Inc. and Pang Lor v. Mai See Vang Yang.
At issue was the ownership of Essential Homecare, Inc. a Wisconsin corporation. Lor (one of the plaintiffs) alleged that as a 50% shareholder of Essential Homecare, Inc., she was entitled to pursue various legal claims against a defendant, Mai See Vang Yang. She felt so entitled because Yang allegedly appropriated the corporation’s funds to herself and removed most of the office furniture, equipment and corporate records. Yang insists she is the sole shareholder and was entitled to do as she saw fit. The Court noted that “there [was] no dispute among the parties that a genuine issue of material fact exists as to corporate ownership.”
What? Let’s stop right there. There is a legal dispute between Lor and Yang over who actually owned the corporation? That should never happen and is easy to avoid. Many important legal documents are involved with properly organizing and operating a business corporation including articles of organization, bylaws, resolutions, minutes and other corporate books and records. Share certificates that show who owns what are often issued to shareholders. The identity of the owners of a corporation and extent of any ownership interest should be spelled out in corporate documents.
Any competent attorney will make sure that ownership is clear and adequately documented. The cost of this lawsuit to each side individually far surpassed the amount an attorney would charge to properly memorialize ownership status, including any change in ownership. That cost does not include the time and stress associated with being involved in a lawsuit.
An oversight by these folks certainly, but once they knew there was legal trouble they would get help to sort out the mess right? They did not, compounding the problem. Lor wanted to sue Yang on behalf of the corporation for the injury that Yang allegedly caused to the company, a separate and distinct “person” for legal purposes. Before she could file such a suit, called a derivative action, by law Lor had to make a “written demand” of the corporation and insist that it do the suing.
How did Lor satisfy this legal notice requirement and make “written demand” of the company? Wait for it . . . by sending text messages to Vang of course. Lor analogized text messages to e-mails, and suggested that courts have recognized text messages in other statutory contexts as “all but replac[ing] hardcopy correspondence and memoranda.” In everyday life, perhaps, but not yet in the legal realm. Alas, the circuit court found that text messages sent to Yang demanding return of the corporate funds did “not satisfy the requirement of a written notice” and dismissed her derivative claims.
No attorney would advise a client to send a text message to satisfy a legal notice requirement. Good grief, just send a letter to be safe!
Lor filed this lawsuit in circuit court in January, 2012 and lawyers had to uncover facts, file briefs, present arguments to the judge and so forth. The derivative claims were dismissed in December, 2013 and an appeal was filed. Lawyers again had to file briefs and make legal arguments to the court, and the dismissal was upheld. The case is not over. Only the derivative claims were dismissed, so now the parties will go back to circuit court to uncover more facts, file more briefs, present more arguments, and maybe even have a trial. This can reasonably be viewed as a colossal waste of time, money and judicial resources that could have been easily avoided.
If you have questions regarding legal entities, business agreements or your legal rights please discuss them with legal counsel who can help get the proper documentation in place. It is less expensive than you think and will save you money and possibly years of litigation in the long run.