• August 12, 2011

Back in February, Minnesota Litigator noted a major win for plaintiffs in a med-tech shareholder dispute (Bioergonomics, or “BioE”) in defeating defendants’ motion to dismiss, which had been brought on numerous bases.

Summarizing the claims and defenses, plaintiffs claim that they were aware of and assumed the risk in investing in BioE, a cutting edge med-tech business, but they did not knowingly undertake the risk that they would be screwed by insider fellow shareholders (to be atypically blunt at the risk of being vulgar).  BioE insider shareholders, plaintiffs allege, devised a plan so that BioE insiders would profit handsomely from BioE but other early investors, the outsiders, would be left with nothing.

Not only did plaintiffs not foresee this second risk, but this is not a risk distribution that the courts ignore, plaintiffs argue.  Defendants’ conduct should trigger liability on numerous bases (including but not limited to fraudulent transfer, unjust enrichment, and conversion) according to plaintiffs.  The defenses are simply that defendants did nothing illegal, that all was consistent with Minnesota law, and when someone invests in a start-up, she knows of the risk, which includes corporate restructuring.

This week plaintiffs successfully stripped defendants of a counterclaim defendants had sought to raise.

Summarizing this latest development, defendants essentially argued in a counterclaim that they were not only shareholders of “Old BioE,” the earlier embodiment of this commercial venture, they were also creditors to old BioE.  Therefore, they argued, they should not be held to have lost their statuses as “old BioE” creditors, they counterclaimed.

The only problem with this counterclaim, Hennepin County Judge Lloyd Zimmerman ruled, is that no one ever suggested otherwise.  The counterclaim, he ruled, is simply pointless and redundant.  Perhaps the analogy would be a dispute of the repossession of an automobile and someone seeks as part of that to get a ruling as to who owns the gold in the trunk (which was never in dispute)?

Judge Zimmerman, incidentally, exercises his well-known wit in the order, highlighting “the loquaciousness of lawyers” and suggesting it is strange that there is not much case law on the subject of verbose, redundant, counterclaims (and passing a subtle compliment to U.S. Mag. Judge Leo I. Brisbois for an earlier ruling, which Judge Zimmerman quotes.)

Regardless, this is no huge victory for plaintiffs.  It is a cosmetic win, but it nevertheless goes in their win column, cannot but help their cause, and the case goes on…

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