COURT FOUND MAJORITY SHAREHOLDER INTENTIONALLY SQUEEZED OUT MINORITY SHAREHOLDER
Trial court properly found in favor of appellee and awarded damages in her action asserting breach of fiduciary duty and civil conspiracy in majority shareholder’s squeezing her out of closely held corporation because evidence supported trial court’s finding that majority shareholder and key employees acted with animus in intentionally and systematically squeezing-out appellee and breached their fiduciary duty to her, Affirmed.
Appellee and her brother were the only shareholders of subchapter S corporation. She was the minority shareholder and brother was the majority shareholder. In 2012, brother demanded she sell her shares at a price determined by him or would “economically destroy her.” She refused, brother called a special shareholders’ meeting, amended the bylaws to eliminate cumulative voting, removed the entire board of directors and elected new directors who terminated appellee’s employment with the company. Appellee individually and on behalf of corporation sued defendant individuals and family trust and requested removal of her brother from his positions in the company and appointment of a custodian for company. Trail court denied appellee’s motion for appointment of a custodian, found company was well-managed and brother’s removal from the board of directors would harm the interests of the shareholders, brother had not always protected minority shareholder interests, elimination of cumulative voting was motivated in part by animus against appellee, diminution of appellee’s role in the company was “oppressive conduct” as was company’s purchased of assets owned by another company appellee co-owned, key employees aided and abetted brother in his breach of fiduciary duty and evidence supported a finding of civil conspiracy. Trail court sua sponte held that appellee was entitled to have her shares bought out by appellants at fair value and ordered discovery on valuation. Trail court then awarded appellee $5,392,000. Appellants appealed.
Appellants argued they were entitled to the benefit of the business judgment rule. Court noted evidence thoroughly supported trial court’s determination that brother intentionally and systematically squeezed-out appellee and breached his fiduciary duty to her. Brother threatened to eliminate appellee from company and used his position as a board member and majority shareholder to do so. Appellants’ business judgment argument failed because brother intentionally acted in bad faith and with animus in squeezing-out appellee. Appellants’ additional claim that trail court’s refusal to remove brother from the board of directors and to appoint a custodian “established” that brother acted reasonably towards appellee was meritless.
Appellants’ argument that the record did not support trial court’s finding that key employees aided and abetted brother in his breach of fiduciary duties failed. Court agreed with trial court that key employees on the board of directors cut off appellee’s access to financial information, thus preventing her from doing her job with the company and causing her to be terminated.
Appellants also contended trail court abused its discretion in ordering their involuntary purchase of appellee’s shares because appellee did not request that relief in her compliant. Pennsylvania courts had consistently held that equitable relief was available to redress a breach of fiduciary duty. In this case, the relief ordered was consistent with and “agreeable to the case pleaded and proven.” Trail court properly fashioned an equitable remedy that did not harm the company by removing brother who was effectively managing the company but ordered a buy-out of appellee and was in accordance with her general prayers for relief. Additional, appellants’ challenge to prejudgment interest failed. Appellee was entitled to interest on the value of her shares that appellants had essentially taken from her and the interest began to run at the time of taking.
Ref: Digests of Recent Opinions, Pennsylvania Law Weekly, 42 PLW 1007, Tuesday, October 22, 2019, Linde v. Linde PICS case No. 19-1241 (Pa. Super. Oct. 11, 2019
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