Malik v. Falcon Holdings, LLC, No. 11-2815 (7th Cir. 2012)
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The LLC was organized in 1999 to own and operate 100 fast-food restaurants. Khan owned 40% of the common units. Remaining common units, and all preferred units, were owned by Sentinel. Plaintiffs, restaurant managers, claim that they accepted lower salaries because Khan told them that he would acquire full ownership and would reward top managers with equity. In 2005, Khan became the sole equity owner, but did not distribute common units to any managers. Plaintiffs calculated that the price paid for Sentinel's interest implied that the business was worth about $48 million; in 2005, 20 managers qualified for units, so each lost about $1.2 million. The district court held that plaintiffs had not adequately estimated damages. The Seventh Circuit reversed, stating that value is what people will pay. The judiciary should not reject actual transactions prices when they are available.
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