When a Seller Acts Erratically After Closing, Obermayer Brings a Steady Hand

After the former owner of a company began acting unpredictably and against his own interests after the sale, member firm Obermayer helped Varnum’s client retake control of the situation.

One of the largest financial-services firms in Michigan was growing quickly through a series of acquisitions. As part of one of its recent deals, it had agreed to pay most of the purchase price through an “earn out,” or a percentage of future sales to the seller’s existing customer list. The purchasing company fully expected that this arrangement meant that the seller had every incentive to cooperate with a smooth and effective transition of ownership.

As it turned out, just weeks after the closing, the seller began accusing the client of alternately failing to contact the customer list and contacting people on the list too frequently. He began an active campaign of disparagement on various social media platforms, including Yelp, Facebook and LinkedIn, and even called some customers directly, trying to convince them not to do business with Michigan member firm Varnum’s client. The seller also helped customers file false reports to the Better Business Bureau, destroyed databases, and changed passwords to all of his online accounts with insurance companies and underwriters.

While there weren’t any direct explanations for the seller’s behavior, Varnum’s team subsequently found out that he had a long history – which included criminal complaints – of anger-related issues and incidents, including fighting with a security guard at a Phillies game, threatening staff with guns, and an arrest record for an argument at a cell phone store. Upon learning this, Varnum’s client immediately changed the locks and hired private security at the seller’s old office space.

Shortly thereafter, the seller’s behavior moved swiftly from antagonistic to downright repulsive. It was at this point that Mathieu Shapiro (managing partner) and Melissa Blanco (associate) of Pennsylvania member firm Obermayer were asked to assist. The Obermayer team worked patiently through the seller’s bizarre behavior, including his insistence on representing himself in court.

Mathieu and Melissa sought and obtained an injunction requiring the seller to stop the disparagement and cooperate with the transition of ownership. After the seller was forced to hire a lawyer and then fired him for supposedly giving him the “bad advice” that he should comply fully with the order issued by the federal court, the Obermayer team brought a motion for contempt. This sparked some compliance by the seller.

The story is still being written. The seller still seems unable to stop himself from acting out, even while giving signals that a settlement might be possible.

But Obermayer’s team has persevered, and there is some good news: The client has pieced together enough information from what the seller was forced to provide to get the majority of the benefit of the deal. Even better, the client has the right under the purchase documents to subtract legal fees and costs from those future earn-out payments.

Although a final conclusion has not been reached, Varnum reports that its client is happy to have found a significant measure of relief following a very difficult situation.