Update (October 28, 2020): After most of a year of procedural threshold battle, the plaintiffs’ case has been thrown out for failure to add the company (Envoy) as a party in a lawsuit that is all about the company. This is an obvious set-back to the plaintiffs, possibly a fatal one, although the Court dismissed the lawsuit without prejudice, giving the Plaintiffs the possibility (however slim it might be) to correct the fundamental infirmity of the lawsuit they brought originally.
Original post (February 14, 2020): Happy Valentine’s Day.
The linked 36-page complaint against Minnesota billionaire, Glen Taylor, and others was brought in late January by minority shareholders of Envoy Medical, a medical device company whose big product is Esteem, “a surgically implanted hearing device” (not, apparently, to be referred to as a hearing aid).
The complaint tells a fairly simple story. In a nutshell, the allegations are that Mr. Taylor, as the majority shareholder of Envoy Medical, ripped off the company’s minority shareholders (who, incidentally, include a hall of fame retired basketball player, Kevin McHale, and his wife).
The plaintiffs threw in a bit of spice to the complaint’s lengthy but uninteresting allegations of self-dealing (diluting voting power of minority shareholders and the like) (uninteresting, that is, to anyone but lawyers and corporate governance geeks). Plaintiffs alleged that Envoy Medical employed Kendahl Prokop, Mr. Taylor’s daughter but fired her for cause. In response, Mr. Taylor allegedly took control of the company, caused the executives who fired Ms. Prokop to be fired themselves, and then allegedly put puppets in their place, who rehired Mr. Taylor’s daughter. (See here at p. 11.)
For now, we can only imagine the defendants’ response to the complaint, which will presumably be forthcoming the next weeks or months. We speculate, though, that defendants will argue that Envoy is and, for a while, has been a potentially failing and flailing company (but with a potentially promising future) that Mr. Taylor and his team have been pouring money into (several million dollars) and this is the thanks they get…. (On the other hand, we might get a non-substantive response — a motion to dismiss as a derivative action that fails to meet the requirements of Rule 23.09 of the Minnesota Rules of Civil Procedure.)
We hope to be able to follow this case, which was brought in Ramsey County District Court (at least initially assigned to Judge Laura Nelson). It could be a good lesson in the proper and/or improper exercise of corporate power with talented lawyers and rich clients battling it out. Unless the case is dismissed or settles fairly quickly, it might afford a lesson for us all, freeriding on the considerable cost to the clients (who can afford the best advocates’ best efforts).