Majority Shareholders Did Not Breach Fiduciary Duties and Minority Shareholder Had Unreasonable Expectations

A family S corporation was created in 1983 with family members holding the corporate stock.  A nephew of the founder, the plaintiff, bought a 25 percent interest in the corporation in 1993 and was being groomed as the founder's successor.  However, the founder ultimately decided that the succession plan wouldn't work with the plaintiff and the plaintiff's employment was terminated in 1995.  In 1996, more stock was sold to other family members on the same terms of the 1993 stock sale to the plaintiff and other shares were given to family members.  The plaintiff retained his shares and typically sent a representative to shareholder meetings.  In 1998, the founder gifted and sold more shares to other family member and then died in 1998 with management transition passing to other family members.  The plaintiff still owned 25 percent of the corporation at this time.  In 2008, the board sold the remaining share of treasury stock to key employees which had the effect of reduced the plaintiffs overall stock ownership percentage.  The plaintiff protested the sale of the treasury stock and bonuses paid to key employees and wanted dividends to be paid to him along with a portion of retained earnings, and wanted paid for two years of employment.  The plaintiff ultimately sold the bulk of his stock to pay his own debts.  The plaintiff then sued the corporation and the controlling shareholders for breach of fiduciary duty, oppression and unjust enrichment.  The trial court dismissed the case and assessed court costs to the plaintiff.  The appellate court affirmed.  The court noted that frustrated expectations is the plight of all minority shareholders and create no special duty on the part of the majority that could lead to a breach of a fiduciary duty, and the majority's actions were fair to the corporation, which is where fiduciary duties are owed.  On the oppression claim, the court cited the IA Supreme Court's Baur opinion which was, in essence, vacated by the trial court for the Supreme Court's incorrect recitation of the facts of the case (the trial court, on remand, held that the Supreme Court opinion was no longer the law of the case), where the court  adopted a reasonableness standard for handling oppression claims.  The court held that there was no oppressive conduct because the bonuses were reasonable and based on expert analysis, and that the plaintiff had no reasonable expectation for employment.  The court also rejected the plaintiff's claim of unjust enrichment because there was no breach of a fiduciary duty owned to the plaintiff.  Ahrens v. Ahrens Agricultural Industries Co., No. 14-0564, 2015 Iowa App. LEXIS 390 (Iowa Ct. App. May 6, 2015).     

 

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