THE COMEDY STORE: A money tussle brews in court

The Comedy Store in Los Angeles is a legendary comedy club with a lot of proud history to it. And it is no stranger to rocky moments either, like its latest in-house brawl. In one word, the top management is at war with each other. Here’s what went down: In December 2009, comedian/actor Pauly Shore, one of the directors of the club filed a lawsuit at the Los Angeles Superior Court against Peter Shore, his elder brother and co-director at the club. Pauly alleged that Peter unlawfully got him removed as a director of the club and also denied him access to accounting information on the operations of the club. Both Pauly and Peter are the children of the club’s owner, the comedy doyenne Mitzi Shore, who is the third director at the club.

Among American comedy clubs, the Comedy Store literally has a background like no other. For the most part, the Comedy Store ‘made its bones’ in the heady 1970s when comedy clubs were just beginning to become the new big thing on the comedy scene and were the path to fame and big money in the industry. On the credit side, the Comedy Store was the place that fostered the careers of some of the biggest names we remember in comedy today: Jimmy Walker, Richard Pryor, David Letterman, Jay Leno and Robin Williams. But then again, the Comedy Store was also the place where comedians staged their first labor-union-type strike in 1979 in their fight to get paid for their work.

As it happens, Mitzi Shore, now in her 80s, owns 100% of the shares of the club. However, Mitzi is currently sick with Parkinson’s disease and is hardly involved in the day-to-day running of the place. By most accounts, since Mitzi’s withdrawal from running the place, Peter has been handling the money with Pauly taking care of booking new talent. Pauly claims that a month before he filed his lawsuit, he had asked to see the company’s tax returns, cash flow statements and cash register details. Rather than give him the information he was asking for, Pauly alleged that Peter refused to turn over the documents and then proceeded to get him fired as a director of the board, using his influence over their sick mother. Pauly claims that Peter exerted “undue influence” on their mother to get him fired from the board.

As one would imagine, the big question here is: Can Peter just hang on to the documents and then literally run Pauly out of town…just like that?
Well, perhaps, not so fast. For starters, a director of a company is a “fiduciary” of the company. (A “fiduciary” is someone in a position of trust and confidence with respect to another person. Under the law, a company is regarded as a person). Therefore, any of the directors of a company can inspect the books and records of the company as long as they do it for a “proper” purpose. Of course, they also have to follow the procedures laid down for getting access to such company information. A “proper” purpose may be any number of things, for example, to investigate fraud or mismanagement of the company’s affairs or even simply to figure out the value of the company’s assets.

With respect to removing a director of a company, usually, it is the shareholders (the owners of the company) who would have the power to do so. In the Comedy Store situation, it looks like Peter did manage to get Mitzi to fire Pauly. Since Mitzi owns 100% of the shares, she is in fact the true owner of the company and so would have the right to fire any of her directors. So, on the face of it, it seems that the removal of Pauly may well be valid. But then it gets complicated: Pauly has alleged that his removal was procured by Peter’s “undue influence” on Mitzi Shore. If that allegation checks out, then Pauly’s removal won’t look so valid anymore, and can indeed be overturned.

So, it turns out that proving “undue influence” is going to be the big thing in this case. Under the law, the potential for “undue influence” usually arises in situations where the two people involved do not have the same or equal capacity to make a sound judgment about things. This could be because one person has superior knowledge about the thing in question, e.g. a lawyer and his client when it comes to matters pertaining to the law. Or it could be because one of the two people involved in the situation, maybe due to illness or disease, simply does not have a good enough mental capacity or a state of mind that is “sane” enough to enable him or her to make a sound judgment about things. A situation where someone suffers from Parkinson’s disease, like Mitzi Shore here, would be the kind of circumstance where the danger of “undue influence” just might exist. Of course, there are other situations.

In any of the many situations where undue influence might exist, the concern of the law is to protect the weaker party (or the person who is under the disability) from fraud or unfair exploitation by the person in the stronger position. The other reason the law intervenes in these situations is to protect third parties or outsiders whose interests might be adversely affected if actions affected by undue influence are allowed to stand. A good example here may be, say, family members who may lose their inheritance under a will because their sick parent decided to change the will and give everything to his girlfriend. Or perhaps people in Pauly Shore’s position if his allegations turn out to be true. What the law does is to literally go over such transactions with a fine toothcomb to ensure that there was no overreaching involved.

As noted above, the Comedy Store situation is the kind of situation where the court would usually want to satisfy itself that there was indeed no “undue influence” considering that Peter, the older sibling was the one who is taking care of their elderly and sick mother. Plus, he got Pauly fired right when Pauly asked to look into the money situation at the company. Quite simply, if Peter explains the somewhat suspicious situation to the satisfaction of the court, then he will be fine and Pauly will most likely be out of the game. However, if the court finds that there was indeed “undue influence”, then Pauly will have a great day in court: first, the court could decide to overturn his removal and re-instate him as director. And then, the court could also order or compel Peter to turn over to him the documents he was asking to see.

To be sure, proving “undue influence” is no cake walk, not even by a long shot. And in situations like these, no one can say how the court will ultimately decide the case, mostly because of all the back- and-forth of presenting evidence and making inferences of fact which are all part of the cloud and dust of a courtroom trial.

And there’s something else here somewhere: Pauly didn’t seem to have done such a great job of troubleshooting ahead of time and this is somewhat surprising. He could, for instance, have tried to bring a “guardianship” proceeding seeking to have the court appoint a formal guardian for his mother. That way, since the guardian would be the one making the big decisions on behalf of Mitzi Shore, Pauly, right off the bat, would have eliminated the chance of Peter being able to influence his mother’s decision about who takes charge of managing the Comedy Store. That being said, it is not too late yet to do so and he can still opt to go that route and get a guardian into the picture and simplify matters.

But whatever happens, fact is, the Comedy Store has come through so many storms in its checkered history and, as the saying goes, this too shall pass. Only this time, the court will get to say how that famous house of laughter is managed going forward. Of course, since this is a family business, it doesn’t have to be that way and indeed most comedy lovers would be hoping that the Shore brothers can work things out outside the courtroom and in a family spirit. After all, “this lawsuit is just a family feud,” as the old comedian Sammy Shore, the family patriarch and original founder of the Comedy Store in 1972, had observed at the beginning of the lawsuit.

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