Shareholder Frustration – Iowa’s Standard for Minority Shareholder Oppression PART II

On June 14, 2013, the Iowa Supreme Court published its opinion in John R. Baur vs. Baur Farms, Inc. and Robert F. Baur, (No. 11-0601) (June 14, 2013).  A very short recap of the facts are as follows:  Baur Inc. was a family farm corporation.  A minority shareholder

Minority Shareholder Oppression

in the family corporation, John Baur, sued the corporation and its majority shareholder, Robert Baur, who served as a director and officer of the corporation.  The minority shareholder alleged, among other things, that the majority shareholder engaged in “oppressive acts” by failing to buy his shares in the corporation at a fair price and as set forth within the corporation’s governing documents.  The minority shareholder requested the court fashion relief by either dissolving the corporation (i.e. terminate and end the corporation) or pay him (the majority shareholder) fair value of his ownership interest.

The Iowa Supreme Court began its analysis by answering the fundamental question, what is shareholder “oppression” in Iowa?  The Court set out to answer this question by stating Iowa’s Business Corporations Act (IBCA) “offers no definition of ‘oppressive’ or ‘oppression.’  The Court also noted that “the Model Business Corporation Act, on which the IBCA is based, likewise fails to furnish definitions of these terms.”  The Court then examined several, often overlapping “standards” for evaluating minority shareholders claims of oppression:

1.  “Some Courts have concluded oppression is ‘burdensome, harsh and wrongful conduct … or a visible departure from the standards of fair dealing and a violation of fair play on which every shareholder who entrusts his money to a corporation is entitled to rely’.”

2.  “Other courts have linked oppression to the derogation of the fiduciary duty ‘of utmost good faith and loyalty’ owed by shareholders to each other in close corporations.”

3.  “A third approach, now perhaps the most widely adopted, links oppression to the frustration of the reasonable expectations of the corporation’s shareholders.”

After citing several cases applying each oppression “standard” above, and after finding the “reasonable expectations” standard is the “most widely adopted,” the Iowa Supreme Court applied the reasonable expectations standard for shareholder oppression to the facts of Baur.

The foregoing serves to highlight the Court’s decision to adopt a bright-line rule in Iowa for minority shareholder oppression.  Not surprisingly, however, the Court did not identify each and every act that would amount to oppression.  Indeed, the Court opined that it “need not catalogue … all the categories of conduct and circumstances that will constitute oppression frustrating the reasonable expectations of minority shareholders’ interests.”  Nonetheless, the Court did conclude as follows:

We hold that majority shareholders act oppressively when, having the corporate financial resources to do so, they fail to satisfy the reasonable expectations of a minority shareholder by paying no return on shareholder equity while declining the minority shareholder’s repeated offers to sell share for fair value.

Should you find yourself or others becoming frustrated with a minority ownership interest in a small corporation or family business that is financially able to provide you a return on your investment but is not providing that return, you may want to consider contacting a corporate dispute attorney and inquiring how best to protect your rights.  Future posts will further address the additional corporate dispute issues addressed in Baur.

LEGAL DISCLAIMER AND TERMS OF USE

Innovative Litigation, L.L.C., as owner and host of this site, and Matthew McKinney as the author (acting on behalf of and through Innovative Litigation, L.L.C.) cannot and does not warrant the accuracy or reliability of the information presented on or through this site.  The law can and does change over time and the information contained herein may not reflect the most recent laws – whether statutory law, administrative law, case law, constitutional law, or otherwise.  The information on this website does not constitute legal advice and readers should not rely on it to solve problems or other matters.  Further, you should seek licensed counsel in the appropriate legal jurisdiction before taking any action.  Any information provided on this site is presented “As Is” for your personal curiosity and enjoyment.  It is not meant to be relied upon for legal advice, counsel, or for any other purposes.  Such information does not take the place of a lawyer.  Rules and laws differ by jurisdiction and the information contained within this website may not apply in your jurisdiction.  The appearance of articles, listings, or ads, by or for professionals, on this site, does not constitute an endorsement.  In all cases, you are responsible for determining the quality of services, information, and/or advice provided by professionals through, or as a consequence of, your use of this site.  Neither liability nor responsibility shall arise to any person or entity with respect to loss or damage caused (or alleged to be caused), directly or indirectly, by information posted on this website, or by reason of contact with a professional listed on, or posting information to, this site.  No attorney-client relationship is formed by viewing this website and practice is limited to jurisdiction where lawyers are admitted.  The information furnished on the website is only general and not a substitute for personalized legal advice.   Legal advice cannot be given without full consideration of all relevant information relating to the individual(s) situation.  Laws can change daily and new laws may, and likely will, affect the accuracy of the information herein.  The information herein may be outdated and replaced by new law.

If you are seeking representation, please read the following notice before sending an e-mail:

Sending an e-mail will not make you a client.  Until an agreement regarding representation is reached with you, anything you send will not be confidential or privileged.  Before representation can occur, a lawyer will first take you through the conflict of interest procedure and see that you are put in touch with the lawyer best suited to handle your matter.

If you proceed with an e-mail, you confirm that you have read and understood this notice.

Advertisements

About Matthew McKinney

Attorney focused on civil and commercial litigation.
This entry was posted in Business Owner, Director, Intra-corporate dispute, Litigation, Manager, Member, New Law, Officer, Shareholder and tagged , , , , , , , , , , . Bookmark the permalink.

2 Responses to Shareholder Frustration – Iowa’s Standard for Minority Shareholder Oppression PART II

  1. Pingback: What you Need to Consider When Selling a Majority Ownership in a Corporation | Business and Corporate Disputes

  2. Pingback: Discounts at Wal-Mart, But What About Your Minority Ownership Interest in an Iowa Business? | Business and Corporate Disputes

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s