UIA 58 TH CONGRESS - FLORENCE/ITALY Litigation Session – “Interesting Cases” October 31, 2014 Family & Business Don’t Mix: A Shareholder Dispute Randy J. Aliment Williams Kastner & Gibbs, PLLC 601 Union Street, Suite 4100 Seattle, WA USA Telephone: (206) /Fax: (206) © UIA 2009

CASE BACKGROUND A Japanese Corporation, client, manufactures and distributes Apple iPhone accessories worldwide. Apple Product sales grew dramatically over the past decade; accessory products did as well. Escalating profits for my client resulted in multi-party litigation in the Federal District Court in Los Angeles. Facts: Client is a primary shareholder in client Japanese Corporation. In 2004, client’s cousin separated from her husband. Client’s Japanese culture obligated him to take care of his cousin whose father, client’s uncle, recently died. Client offered cousin an opportunity to assist him in establishing a U.S. entity to distribute Apple iPhone accessories on a global basis.

CASE BACKGROUND (continued) Cousin was previously employed as a hairdresser with no international business or sales experience. Cousin was appointed an Officer of U.S. entity and granted a 10% ownership interest. Client owned the remaining shares and provided financial contributions to U.S. entity. U.S. entity purchased its materials from client Japanese Corporation. U.S. entity’s sales grew dramatically from 2005 through 2010, primarily due to the agreements with Apple and the corresponding financial success of Apple, Inc. Cousin claimed U.S. law required that she own a majority of the U.S. entity so it could be classified as a minority-owned business. Believing this, client sold her 41% additional interest in U.S. entity and she became the 51% majority shareholder. Cousin wrongfully used U.S. entity money to fund her personal acquisition. The cousins began to clash as sales rapidly increased, yet cousin reported no profits.

CASE BACKGROUND (continued) U.S. entity began to delay payments for product purchased from client Japanese Corporation. U.S. entity established a second trade name distinct from client Japanese Corporation. Client discovered cousin's theft of millions of dollars and litigation followed.

LITIGATION GOALS Client sought control of U.S. entity and also to re-establish/protect his brand’s reputation. Client sought rightful share of the dividends over the past eight years. Client sought past due payment for products. Client sought termination of cousin’s two sons, who had secretly become executives of U.S. entity. During cousin’s divorce, she requested a loan from client. Client sought repayment.

POTENTIAL ISSUES Did cousin siphon off U.S. corporate profits and assets? Was the compensation paid by U.S. entity to cousin, as directed by cousin, reasonable? Was the compensation to cousin’s sons justified? Did the U.S. entity officers receive any extraordinary benefits? Where did U.S. entity’s profits/cash go? Any evidence of cousin’s funneling business to unknown, solely owned entities? Did cousin really purchase the additional 41% shares if corporate assets were used?

LITIGATION SETTLED All litigation settled shortly after mediation. Cousin’s interest bought out for reasonable settlement. Client took control of U.S. entity. U.S. entity retained Apple business and secured additional lucrative contracts long-neglected by cousin.