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Avoiding Acrimony: Resolving Internal Business Disputes Without Rancor

Internal business disputes can be a fact of life, whether in closely-held companies or in publicly-traded companies. At times, however, those business disputes can lead to larger problems.

An example can be found in the California investment firm Aletheia Research and Management. Aletheia was co-founded in 1997 by Roger Peikin and Peter Eichler. Aletheia’s co-founders remained active in its operation, with Peikin serving as the chief financial officer, general counsel, and chief compliance officer, and Eichler serving as the chief executive officer.

A bitter split between Peikin and Eichler took place in mid-2009. One alleged cause of the rift was Peikin’s objection to Eichler’s handling of an ongoing Securities and Exchange Commission investigation into the books of Aletheia. Peikin eventually was removed from his management position by the Board of Aletheia.

Peikin remains as a director and major shareholder of Aletheia, but his loss of a managerial role has led to an acrimonious and now very public dispute over the firm’s direction. Peikin has filed a wrongful termination lawsuit against the company and Eichler, alleging that he was ousted for challenging Eichler’s indifference toward regulatory compliance, wasteful personal use of company assets, unethical trading activity and poor business practices. The suit is filled with embarrassing details for the company, such as allegations of Eichler’s lavish lifestyle.

Most internal disagreements do not lead to scorched earth litigation. By consulting closely with business law attorneys, partners and shareholders can explore a host of strategies for satisfactory resolution of internal business disputes, and can plan for properly addressing triggering issues such as breaches of fiduciary duties, misconduct, departure of a principal, improper disbursement of profits, or disagreement over the direction the company is taking.

One of the most important steps that can be taken is to ensure that the business entity is governed by detailed bylaws that define the means by which various types of disputes will be resolved. These issues can present unique challenges, and the principals should all have a comprehensive discussion of these issues with an experienced business lawyer to avoid unanticipated or unforeseen complications.

When the systems put in place by the bylaws break down, leading to an entrenched dispute among or between partners, shareholders and other players, a negotiated solution facilitated by level-headed legal guidance can avoid the kind of public airing of differences which Aletheia has suffered. And even if this leads to a negotiated buyout of one principal or other restructuring of the business, that result can be much more advantageous for all involved than the dissolution of an otherwise-viable business.

Enlisting Business Counsel for the Long Haul

However, business litigation is sometimes inevitable. Considerable savings of assets and time can sometimes be accomplished through alternative dispute resolution, and arbitration or mediation can keep a heated dispute between business leaders out of the public eye and secure from the attention of valued clients or vendors.

Companies that retain experienced counsel, either at the point of business entity selection or during the lifespan of the business, can avoid or minimize the impact of litigation.