Minnesota Court of Appeals Clarifies When Dissenters are Entitled to an Award of Expert Witness Fees
James E. Dorsey and S. Jamal Faleel, May 2010
Recent District Court Ruling – A Minority Shareholder’s Rights Trump The Squeeze-Out Merger That The Majority Shareholders Had Sought
James E. Dorsey and S. Jamal Faleel, September 2009
Tips for Disputes Involving the Valuation of a Closely-Held Company
James E. Dorsey and Emily E. Duke, May 2009
Shareholder cases arise in many contexts and we handle them all. We represent majority shareholders in some cases, minority shareholders in some cases, and the company itself or its directors/officers in still other cases. We work with our clients to determine their goals and then to devise the best strategy to achieve them.
We work with our clients to determine their goals and then to devise the best strategy to achieve them.”
Areas of Expertise Include
- Board/Shareholder/Partner Deadlock
- Buy-Sell Agreements
- Corporate Waste
- Creditor Claims
- Dissenters' Rights
- Fiduciary Duty
- Merger & Acquisition Disputes
- Merger Disputes
- Piercing the Corporate Veil
- Proxy Fights
- Shareholder Abuse Claims
- Shareholder Control Agreements
- Stock Options
- Valuation of Companies/Stock
While the fact patterns may vary, the legal issues generally break down into two groups. First, the parties and the court will contend with the issue of liability -- has there been a breach of fiduciary duty at common law or a breach of statutory duty as contained in the corporate statutes? In determining whether the corporation or the majority are liable in some way, the court will generally examine the relationship among the shareholders as it existed at the time the company was created and as it evolved over time. The court will also look at the parties' agreements, as well as the conduct of the parties toward one another.
If liability is found, then the second legal issue arises -- what remedy should be applied? While courts have free reign to craft equitable remedies, the most common remedy is a buy-out at "fair value." As lawyers, our job is to present evidence and expert appraisal testimony that will help the court determine the fair value of the company. That determination gives rise to questions of proper appraisal of valuation (income, market, cost, etc.) and the applicability of any discounts. In the course of working on these valuation questions, we have worked with most local appraisers and many national appraisers.
Typical Fact Patterns
Two 50% shareholders/business partners are deadlocked and they must either dissolve the company, split the company, or have one buy out the other.
A closely-held corporation terminates the employment of a shareholder-employee, who then claims a right to be bought out at fair value.
Second- or third-generation family members of the founder of a corporation are all shareholders of the corporation; however, since not all of them are employees, the non-employee shareholders get little or no benefit from their stock ownership and seek dividends or liquidation.
A shareholder of a closely-held corporation is getting divorced and, in that context, the corporation must be appraised.
The shareholder-employee of a closely-held corporation wants to retire and be bought out pursuant to the terms of the company's buy-sell agreement; however, the price provisions set forth in the buy-sell agreement are outdated and no longer reflect fair market value.
The corporation, at the direction of the majority shareholders, undergoes a statutory merger whereby the majority shareholders get stock in a new corporation (created solely for purposes of the merger) and the minority shareholders get only cash, subject to their asserting their dissenters' rights to have a court determine the fair value of their shares.
One or more minority shareholders object when:
- A closely-held corporation contracts with a business wholly-owned by one of its shareholders;
- The corporation employs one or more family members of the majority shareholder;
- A business opportunity is declined by the corporation and is taken up instead by a corporation wholly owned by a majority shareholder;
- The corporation awards highly-dilutive stock options to majority shareholders;
- The corporation pays above-market salary and benefits to the majority shareholder-employees.