Minority sharehoders did not have a "reasonable expectation" of continued employment after serious issues arose between them and the majority which rendered them unable to work together.
Those same shareholders did have enforceable reasonable expectations that their stock ownership interest would not be diluted, however, and the Court invalidated steps taken by the majority to
The "reasonable expectations" of minority shareholders as to continued employment and continued stock ownership were the issue in Vernon v. Cuomo, 2009 NCBC 6 (N.C. Super. Ct. March 17, 2009), decided yesterday by the North Carolina Business Court.
Judge Tennille ruled after a one week trial that the Plaintiffs did not have a reasonable expectation of continued employment, given extreme animosity that had developed among the shareholders of the Company.
On the dilution issue, however, the Court ruled that Plaintiffs had a reasonable expectation that their ownership interest in the Company would not be diluted, at least not through the means that the Defendants chose to accomplish that dilution. Plaintiffs were restored by the Court to their original ownership position and the Court ordered dissolution of the Company.
The Plaintiffs were two shareholders with a 40% ownership in TriboFilm, Inc., which was developing technology to eliminate silicone as a necessary lubricant in syringes. They had a serious falling out with the Defendants, five other shareholders who controlled the remaining 60% of the Company. The Court described the situation as "intolerable" and "dysfunctional."
The majority stripped the Plaintiffs of their status as employees, officers, and directors. Then, after each faction rejected an offer by the other to be bought out, the Defendants implemented a plan to virtually eliminate the Plaintiffs’ ownership interest. Here’s what happened as the Court described it:
Plaintiffs sued, asserting that their "reasonable expectations" as shareholders to continued employment and continued ownership of their stock had been frustrated. They lost on the first point, but won on the second.Continue Reading Reasonable Expectations Of Minority Shareholders Frustrated By Dilution of Ownership, But Not By Termination Of Employment
Defendant, who was a director, shareholder and former employee of the corporate plaintiff, moved to disqualify the corporate plaintiff’s counsel. He argued that he reasonably believed that the law firm had represented him with regard to the agreements at issue and a guaranty agreement. He also argued that disqualification was appropriate because the corporation’s lawyers
Plaintiff, a significant (42.5%) minority shareholder of the corporate defendant, filed a derivative action against the corporate defendant. The Court characterized the case as "a domestic case disguised as a derivative action." The Court looked to the law of Virginia, the place of the incorporation of the company, to determine the appropriate prerequisites.
The claims
The plaintiffs in this case sought the dissolution of a closely held corporation pursuant to N.C.G.S. §55-14-30(2)(ii) on the ground that the business of the corporation was being conducted to the unfair advantage of the majority shareholder. The Court found that dissolution was appropriate because the reasonable expectations of the majority shareholders were not being
Plaintiffs had established their right to involuntary dissolution of the closely held corporation in which they were shareholders because their reasonable expectations had not been met, and the business of the corporation was being conducted to the unfair advantage of the minority.
The corporation was entitled to avoid dissolution by paying the oppressed shareholder the