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Sometimes the Best Defense is a Good Offense

Waller recently defended Surgery Partners, Specialty Surgical Center of Thousand Oaks, LLC, (SSC), a California limited liability company operating an ambulatory surgery center, and individual physician members of SSC’s governing board against a multi-million dollar lawsuit filed by a disgruntled minority member in Los Angeles Superior Court.  The plaintiff charged classic “squeeze-out” allegations after SSC’s governing board voted to oust him from SSC after he engaged in improper behavior. When the SSC board invoked its authority under the SSC operating agreement to redeem the ousted member’s interest without any payment based on that improper conduct, the ousted member sued for breach of fiduciary duty, breach of contract, and violation of California’s unfair competition laws.  He sought various forms of relief, including punitive damages.

After two years of contentious litigation, the court granted SSC’s summary judgment motion and dismissed the entire case, finding that the board’s decision to oust the minority member was protected by the business judgment rule. In particular, the court sided with Waller’s argument that the board properly terminated the plaintiff’s interest in SSC based on his actions which disrupted the affairs of the company and were adverse to its best interests. 

The ruling represents a notable development in California, where courts are generally considered to be favorably disposed to minority shareholders in squeeze-out cases, and where state law imposes much more stringent fiduciary duties on corporate boards than other more business-friendly states like Delaware. The ruling also represents one of the strongest articulations of California’s business judgment rule, particularly in the areas of conflicts of interest and duties to investigate.  The court’s rationale establishes a solid foundation for stronger protection of corporate boards in California in cases that follow.

In addition to finding in SSC’s favor regarding all of the ousted shareholder’s claims, the court also ordered that he pay SSC for its attorneys’ fees and costs incurred in defending the matter. A copy of the court’s opinion can be found here.

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