Owners of company may have liability for causing company to refuse to close deal with an investor

Buyer is a family owned beer brewery, based in Morganton, North Carolina. In 2017, Buyer wanted to purchase the assets of Seller, also a family owned beer brewery based in Charleston, South Carolina.

As part of the deal, Buyer’s owners (all family members and officers of Buyer) promised an investor the opportunity to purchase about 13% of Buyer for $3.5 million. The investor stated the offer was memorialized in an email. The investor also claimed that he and another investor spent over $200,000 relying on the owners of Buyer’s promise, including closing on a loan for $1.5 million to fund the cash portion of the investment.

After the sale of Seller to Buyer closed, the investor claimed that the owners of Buyer refused to sell the investor the previously agreed interest in Buyer. The investor stated that this refusal was made clear in an email dated April 5, 2018, from one of the owners of Buyer to the investor, stating that the owners of Buyer were not ready to part with a portion of their “baby”.

The investor sued the owners of Buyer on May 3, 2018. The owners of Buyer filed a motion to dismiss basically arguing that the investor’s quarrel is with Buyer and not the owners of Buyer.

The federal district court, applying South Carolina law, noted that, as a general rule, the owners of Buyer as sole owners and officers of Buyer, are not, merely as a result of their status as such, personally liable for the wrongful acts of Buyer. However, that does not mean that they are free from any potential liability based on their actions. To incur liability, they must ordinarily be shown to have in some way participated in causing Buyer to back out of the investment deal reached with the investor.

The court had no problem in finding the actions of the owners of Buyer, as described by the investor clearly alleged facts sufficient to show that, if proven, the owners of Buyer each participated in and directed Buyer to back out of the investment deal.

This case is referred to as Scott v. Catawba Valley Brewing Company, Case No. 2:18-cv-1539-RMG, United States District Court, South Carolina, Charleston Division (August 17, 2018). https://scholar.google.com/scholar_case?case=12086472352635923982&q=%22stock+purchase+agreement%22&hl=en&scisbd=2&as_sdt=2006&as_ylo=2017

Comment. Business people form corporations to shield their personal assets from the liabilities of the business. But there are times when a shareholder, officer or director of a corporation can cause the corporation to take risky actions that result in personal exposure to the shareholder, officer or director.

By John McCauley: I help people start, grow, buy and sell their businesses.

Email: jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:        714 273-6291

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Posted in financing acquisition issues, owner liability for company breach of financing deal

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