Articles Posted in Shareholder Oppression

Directors of a corporation owe fiduciary duties to the shareholders of the company. This means that when directors communicate with shareholders about the company, they have a fiduciary duty to exercise due care, good faith and loyalty. Directors can be held personally liable if they intentionally or recklessly mislead shareholders about the business or condition of the corporation. A Delaware Chancery Court recently dismissed a suit filed against the directors of GoPro, Inc. by a group of disgruntled shareholders who alleged that the directors misled them by issuing overly optimistic revenue guidance that the company was unable to live up to.

In 2016, GoPro, the camera manufacturer, had plans to roll out several new products to the market including a premium drone equipped with the latest GoPro cameras and a new wearable camera that has become ubiquitous among outdoor enthusiasts and influencers around the globe. GoPro’s board of directors issued revenue guidance for 2016 based on projected sales of both products. The revenue forecasts were generally positive. Continue reading ›

After several former employees stole and destroyed internal data from their employer in order to found a competing business, and were sued, the trial court’s appointing of a third party to monitor the new company’s compliance with discovery and restraining orders was not error.

Shamrock Corporation has sold antifreeze, motor oil, and heat transfer fluids since 1974. Eventually, John Dreamer, Sr. became the sole shareholder of Shamrock. When John died, his wife, Annie Dreamer, became the sole shareholder. The entirety of Shamrock’s stock is held in a trust with Annie as the beneficiary.

Shamrock had five employees: John Dreamer, Jr., Les Kreifels, Steven Wroblewski, David Wells, and Chris England. The Dreamer family decided to sell Shamrock and offered Wroblewski and Wells the opportunity to make the first offer. The two submitted an offer that was financially acceptable but included collateral terms that the Dreamer family refused to accept. In August 2017 Shamrock made a counter-offer that revised some of the collateral terms.

In September 2017, Wroblewski and Wells abruptly resigned. England resigned four days later. Just prior to their resignations, the three had Beaver Shredding, Inc. destroy several boxes of documents at Shamrock’s headquarters. The three also deleted large amounts of data from Shamrock’s internal computer system. Prior to the deletion, Wroblewski had uploaded data from the computers to the digital storage site Dropbox. Continue reading ›

As we have written about previously, one of the concerns with purchasing a minority stake in a closely held corporation is the potential for shareholder oppression. This concern is even more relevant when a non-family-member considers buying into a family-owned business. One minority shareholder found this out the hard way when he suffered a backlash after raising concerns about the conduct of the founder and majority shareholder of a closely held Illinois corporation.

In 1962, Kenneth Packer founded Packer Engineering Inc. (“PEI”) and its parent company, The Packer Group, Inc. (“TPG”), in Du Page County. Packer soon grew PEI into a well-respected professional engineering firm. Both PEI and TPG shared a number of the same officers and directors, including Packer who served as the board chairman for both companies.

In 1979, Edward Caulfield was hired by PEI as its director of mechanical engineering. In 2002, Caulfield became president and chief technical officer of PEI. Caulfield was offered a minority equity interest in TPG in addition to his base salary of $500,000. Continue reading ›

No withstanding allegations of majority shareholder oppression, the Seventh Circuit rejected those arguments paying deference to the business judgment rule because of the Indiana Legislature’s directive to give officers and directors a wide berth for their business decisions.  The Court observed:

 “Indiana has statutorily implemented a strongly pro-management version of the business judgment rule,” G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227, 238 (Ind. 2001)— the rule that creates “a presumption that directors making a business decision, not involving self-interest, act on an informed basis, in good faith, and in the honest belief that their actions are in the corporation’s best interest.” Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds in Brehm v. Eisner, 746 A.2d 244 (Del. 2000).

You can listen to the oral argument before the court here:

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