On Tuesday, the Court of Appeals affirmed the Business Court’s award of summary judgment against a shareholder of three private corporations in High Point Bank & Trust Co. v. Sapona Manufacturing, Inc. We wrote about the Business Court’s ruling last year, but here’s the quick recap: The estate of a woman who was the daughter and granddaughter of the founders of three family-originated corporations in Randolph County sued those businesses seeking the redemption of over $3.6 million worth of stock.
The estate asserted a Meiselman claim, seeking dissolution on the grounds that the decedent had a reasonable expectation that her shares would be repurchased by the corporations upon her death and that the corporations had frustrated that expectation by refusing to redeem the shares. Judge Tennille dismissed her claim on the grounds that the expectation, even if subjectively held by the decedent, was not held by all of the other shareholders and that her expectation was therefore unreasonable.
The Court of Appeals affirmed Judge Tennille’s opinion in all material respects. The insufficient evidence of a shared understanding and expectation of a right of redemption consisted of the repurchase of one shareholder’s stock after his death in 1997, two corporations issuing a tender offer in 1997, and one corporation issuing another tender offer in 2000. Rather than establishing an expectation of repurchase, this evidence "establish[es] a precedent that the corporation will ‘from time to time’ offer to purchase shares up to a certain amount and at a specified price."
In a footnote, the Court noted Judge Tennille’s analysis that there is a theoretical limit on the size of a corporation that can still be liable under Meiselman. (In contrast to certain lending houses that were "too big to fail," these corporations would be "too big for plaintiffs to succeed"). Although the Court of Appeals did not really take a position on this part of the Business Court’s analysis, the size and breadth of the ownership base is relevant to several factors: the likelihood of antagonistic relationships with and dominance by a single majority shareholder; the number of other shareholders whose own expectations would need to mirror the plaintiff’s in order for her to prevail; and the equity of dissolution toward shareholders who don’t play a role in the oppressive conduct. These factors become nearly impossible for shareholder plaintiffs to satisfy once ownership is spread beyond more than a handful of people.