An Illinois Appellate Court recently revived a breach of fiduciary duty and shareholder oppression lawsuit filed by minority shareholders against the president, director, and majority shareholder of a lumber company. The suit accused the majority shareholder of diverting nearly a million dollars from the lumber company to a separate company owned by the majority shareholder’s son. The trial court dismissed several of the minority shareholders’ claims and ruled in favor of the majority shareholder following a trial on the breach of fiduciary duty claims. In a blow to the majority shareholder, the Second District appeals court reversed the trial court finding that the majority shareholder did breach his fiduciary duties to the company and engaged in shareholder oppression.
The case provides practitioners and shareholders a useful primer on pleading and evidence requirements for successfully asserting breach of fiduciary duty and shareholder oppression claims against a corporate officer. It also sheds light on the contours and limits of a key legal doctrine implicated in such claims: the business judgment rule doctrine.
The case, Roberts v. Zimmerman, involved four separate but related lumber companies: Our Wood Loft, Inc. (OWL), Outstanding, 3 Corp. Lumber Company, and Lake City Hardwood. The plaintiffs in the case were minority shareholders who collectively owned one-third of OWL, with the defendant, Stefan Zimmerman, owning the other two-thirds of the company. Zimmerman’s son, Thomas, owned Lake City.
The plaintiffs’ complaint alleged that Zimmerman initially sought to have his son buy shares in OWL but the minority shareholders refused. Instead, the plaintiffs agreed to allow Thomas to work as a manager at OWL. While working at OWL, Thomas started Lake City. Shortly thereafter, Lake City began purchasing lumber and re-selling it to OWL at a profit. The complaint alleged that Zimmerman did not reveal the relationship between OWL and Lake City and that Thomas owned Lake City until several years after OWL started buying lumber from Lake City. Continue reading ›