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Texas Jury Orders $65 Million Dividend in 'Oppressed Shareholder' Case
The American Lawyer
October 28, 2009
Correction: An earlier version of this story incorrectly identified the CEO of ARGO as Max Masters. He is Max Martin. We also incorrectly reported the jury's award of attorney's fees. The correct amount is $560,000. We regret the errors.
The challenge for Diamond McCarthy's trial team was considerable. How do you convince a Texas state court jury that a shareholder who received almost $12 million in dividends last December is "oppressed"?
"The other [side] said that over and over," said Ladd Hirsch, who led Diamond McCarthy's team for Balkrishna Shagrithaya, the co-founder, former chief technology officer and minority shareholder of ARGO Data Resource Corporation, a privately held software company. (Shagrithaya owns 47 percent of the shares; his co-founder, ARGO CEO Max Martin, owns the other 53 percent.) "We said [Shagrithaya] was oppressed because that was only seven percent of ARGO's total retained earnings," Hirsch told us Tuesday.
At the six-week trial in Dallas, Diamond McCarthy asked jurors to order ARGO to pay a dividend of $90 million from its total retained earnings of about $145 million. Lawyers from Haynes and Boone, which represented ARGO, and Carrington Coleman, on behalf of CEO Martin, argued that the company shouldn't have to pay any dividend following the total $25 million dividend paid to Martin and Shagrithaya last December.
On Monday, after seven days of deliberations, the jury sided with Diamond McCarthy's client, though they didn't give Shagrithaya everything he asked for. In a verdict that still has to be approved by the trial court judge, jurors ordered ARGO to pay out a dividend of $65 million, of which Shagrithaya is entitled to 47 percent. They also found for Shagrithaya on his fraud and breach of contract claims, and awarded the former CTO about $2 million in back pay and almost $560,000 in attorney fees.
The story behind the trial, as Hirsch tells it, is a sad one. Shagrithaya and Martin founded ARGO in 1980 with a total of $1000 ($470 from Shagrithaya; $530 from Martin). Shagrithaya developed software that banks use to communicate with one another, Martin marketed it, and the company thrived. For more than a decade Martin and Shagrithaya -- who, in addition to being the company's only shareholders were its only board members -- paid themselves $1 million a year in salary. They retained almost all of the company's earnings, accumulating more than $150 million held by ARGO.
Then there was a falling out. Martin cut Shagrithaya's salary and tried to buy him out at what Hirsch says was a steep discount from his 47 percent stake. Shagrithaya sued. Diamond McCarthy took over the case from Weil, Gotshal & Manges in January 2009, two months before trial was originally scheduled to begin.
Diamond McCarthy's team, in addition to Hirsch, included MaryAnn Joerres, Jason Fulton and Andy Ryan. We called Haynes and Boone and Carrington Coleman for comment, but didn't hear back from them.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
