Shareholder Joe Galardi recently won an appellate victory in the Fourth District Court of Appeals in Palm Beach County, Florida.
Joe represented a private equity firm and its founding partner who were the general/managing partners of a Delaware limited partnership. That partnership acquired a South Florida-based Company through a series of capital raises and multiple rounds of equity and debt financing totaling $13.4 million. One of the limited partners/investors sued Joe’s clients in a derivative action in Palm Beach County, alleging that they had committed fraud a breach of fiduciary in connection with a capital restructuring that resulted in a “cram down” and dilution of the all the investors’ equity in the Company to nothing. When the plaintiff repudiated a settlement of the claims, Joe successfully obtained an order from the trial court enforcing the settlement. Joe then obtained approval of the settlement of the derivative claims as fair and reasonable to all the investors and the Company as required under section 607.0745 of Florida’s Business Corporation Act.
The settlement fairness issue was quite unique. Normally, the settling parties jointly present the settlement of derivative claims to the court as fair and reasonable. In this case, the plaintiff/investor was being compelled to abide by a settlement it did not like and thus objected to the fairness of the settlement. The investor appealed both the court order compelling the settlement and approving the fairness of the settlement. The Fourth District Court of Appeals agreed with Joe and his clients and affirmed the trial court rulings. Had the settlement been rejected, Joe’s clients faced years of additional complex and expensive derivative litigation seeking to recover claimed damages of at least $8 million.
The case is Third Reef Holdings, LLC v. Martin Stein, Blackford Capital Associates II, Inc. and BFC-BSA, LLC, No. 4D19-3028 (Fla. 4th DCA 2021).