[O]ur definition of oppressive conduct “requires that those in control of a corporation willfully treated some of the shareholders in a wrongful manner to which other shareholders were not subjected.”

Step one in bringing (or defending) a shareholder oppression/dissolution claim must be to identify the primary injury and the injured.

As with Notz, the Krier case is not a quick read, but worth a look for those interested in shareholder issues and professional liability.  Once again, Bradley and Abrahamson part ways with their colleagues, this time complaining that the court doesn’t follow the reasoning established in Notz (which, ironically, Bradley and Abrahamson dissented from, as well).

In Krier, the majority decided that:

In summary: The plaintiffs do not have standing to assert these claims against the defendant for at least three reasons.  First, the plaintiffs’ claims are inconsistent with traditional corporate law principles and the damages sought are far beyond that afforded to a plaintiff in a derivative action.  In order to initiate a derivative action, a plaintiff must be a current shareholder of the subject corporation.  Second, the plaintiffs’ claims are quite distinguishable from accountant third-party liability jurisprudence, which has traditionally allowed claims for the foreseeable injuries resulting from the accountant’s negligent acts, i.e., the injuries that result when a third party takes action based upon reasonable reliance on misinformation provided by an accountant.  Third, the damages claimed by the plaintiffs do not correspond with the claims alleged

Bradley and Abrahamson argue that the majority’s reasoning is inconsistent with Notz:

This case and Notz are in direct conflict.  In Notz, one shareholder got a disproportionate financial benefit.  It was as though one shareholder was able to put money in its pocket while another was not.  The court concluded that because one shareholder did not receive the same financial benefit as the other, a direct claim could be maintained.  In this case, Michael Vilione actually did put corporate money in his pocket, yet the majority concludes that Krier, who did not receive the benefit, has no direct claim.  Ultimately, due to this conflict with Notz, the majority here confuses the law, giving practitioners and judges no real guidance.

 The plaintiff’s damage claim was also very creative, based upon an expert opinion of the future value of the company if the misappropriations had been prevented.

In Yates, the company typically paid a year-end bonus to its two shareholders, based on annual profit over a certain amount.  Because this payment was based on the company’s profits, and paid based on ownership interest, rather than productivity, contribution, or the desire to retain either shareholder’s services, the payment was a dividend. 

The court goes on to discuss the existence and breach of fiduciary duty and the business judgment rule — less interesting, but still a good refresher.

It’s pretty apparent, even from a quick read, that neither of the two shareholders is a model citizen.  However, the trial court certainly found one more convincing than the other, which, I think, was the key to both the trial court and appellate court outcome.

The unanimous Court permitted Notz’s fiduciary breach claims based on a so-called “constructive dividend” to proceed, along with his claim for judicial dissolution.  This decision was exhaustively explained, with Roggensack writing a separate concurrence (joined by Gableman) and Bradley also writing a separate concurrence (joined by Abrahamson).  Ziegler did not participate. 

Where Bradley and Abrahamson parted ways with the rest was on the majority’s dismissal of Notz’s claims for breach of fiduciary duty based on loss of corporate opportunity.  Bradley’s arguments that the majority’s reasoning is inconsistent are definitely worth having a look at.