OCM Partner David Mack Quoted in Massachusetts Lawyers Weekly

OCM partner David Mack was quoted by Massachusetts Lawyers Weekly in an article about People’s United Bank v. B&B Fire Protection, Inc., a recent Massachusetts Appeals Court decision that involved a company’s failure to affirmatively repudiate a loan guaranty arranged by its majority shareholder for the benefit of his other business interests. The issue arose after the minority shareholder had a falling out with the majority shareholder and purchased the business in a litigation settlement. After learning about the loan, the new owner (the former minority shareholder) failed to repudiate it and instead formed a separate company to take over the assets of the old company. He then used these assets to pay the new company’s expenses. Ultimately, the court found the actions and inaction on the part of the minority shareholder amounted to ratification of the guaranty.

In the article David notes this case is the poster child of how not to act when buying out a partner and operating a company after the buyout. He states, “This buyer should have discovered the misconduct during the buyout diligence but took a decidedly casual approach and didn’t discover his partner’s misconduct.” David says the minority shareholder had a second chance when he learned of the voidable transaction but instead of addressing the issue directly, he willfully ignored it and compounded the problem when he siphoned off assets to a new entity he created. David notes, “This is a helpful example for lawyers to use when advising small business owner clients and a useful primer on the law of ratification.”

For more information about the decision and its implications, read the article in the January 2019 issue of the OCM Razor.