Shareholder Oppression Claimed in Business Dispute
In 2004, the defendant in this case (owner of a mechanical contracting company) decided to expand his business and create a new electrical services contracting company. The plaintiff, a master electrician, approached the defendant about collaborating in the new business and using his electrical experience to manage the new company. The electrical company was incorporated in 2005 and financing was obtained. The defendant owned the land and the building containing the corporate office. The plaintiff was named president and director and was paid a yearly salary. The plaintiff owned 40 percent of the stock, the defendant owned 55 percent and the defendant’s wife owned 5 percent. In 2007, the plaintiff incorporated his own electrical services corporation, notified the defendant of his intent to leave, and requested dissolution of the initial corporation. The plaintiff began bidding jobs under the new corporation and the other employees joined the new corporation.
Ultimately, the plaintiff sued for dissolution of the corporation and buy-out of shares based upon shareholder oppression. In 2010, the trial court dismissed all of the plaintiff’s claims against the defendants and ruled that the plaintiff did not act in good faith when exiting the company. The court ordered that the plaintiff and the newly-formed corporation were liable for the lost profits of the former company - $448,000.
On appeal, the court first addressed the validity of the plaintiff’s argument for judicial dissolution of the corporation based upon shareholder oppression. The plaintiff’s brief did not contain specific evidence of the alleged actions of oppression and the court was unwilling to judicially dissolve the corporation. The real issue was that the parties’ testimony differed so drastically in so many respects that the court was not willing to “assume a partisan role” in the case.
As to the plaintiff’s alleged breach of fiduciary duty, the plaintiff argued that he was expressly exempted from any fiduciary duty with respect to the corporation by agreement between the parties. Once again, the plaintiff’s brief did not give a clear indication of the aspects of the alleged agreement.
The big issue here was damages for lost profits. The plaintiff argued that the trial court’s award was “speculative and exorbitant” under the new business rule which provides that potential profits from a new commercial enterprise are generally speculative and hard to recover because there is no historical data to support them. However, the appellate court found that the damages, here, were actual business results, not projected, and the amount was a conservative estimate calculated with reasonable certainty. Depenning v. Resource Electric, Inc., No. 1-304/10-1377, 2011 Iowa App. LEXIS 757 (Iowa Ct. App. Jul. 27, 2011).