## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-2246

___________ William B. McCallum, * * Plaintiff-Appellant, * * v. * Appeal from the United States * District Court for the District Rosen's Diversified, Inc., a * of Minnesota. Minnesota Corporation, * * Defendant-Appellee, * * Ludwig M. Rosen, individually; * Elmer H. Rosen, individually; Thomas * J. Rosen, individually; Rosen's * Diversified, Inc., sued as "Rosen's * Diversified, Inc. Employee Stock * Ownership Plan and Trust"; Ludwig M. * Rosen; Elmer H. Rosen; Thomas J. * Rosen; Richard Rosen; Robert Hovde; * Jane Doe; David Roe; Sally Roe, whose * true and correct names are unknown but * who are, upon information and belief * Administrators, Fiduciaries and * Trustees of the Rosen's Diversified, Inc., * Employee Stock Ownership Plan and * Trust; Steven Roe; Roe Corporation, * whose true and correct names are * unknown as named fiduciaries of the * Rosen's Diversified, Inc. Employee * Stock Ownership Plan and Trust, * *-2- Defendants. *

___________ Submitted: June 11, 1998 Filed: August 19, 1998

___________ Before BEAM, ROSS, and MAGILL, Circuit Judges.

___________ BEAM, Circuit Judge. William B. McCallum, a minority shareholder in Rosen's Diversifie d, Inc. (RDI), appeals from two adverse grants of summary judgment. McCallum seeks to have his shares in RDI redeemed for fair value pursuant to a court ordered buy-out. The district court held that McCallum failed to present evidence showing that RDI acted unfairly prejudicial toward him. We reverse and remand for a determination of the fair value of McCallum's shares.
I. BACKGROUND
Thi s case involves a contentious dispute between the minority and controllin g sharehol ders of a closely held Minnesota corporation. Two brothers, Elmer an d Ludwig Rosen, founded RDI as a livestock t rading business in the late 1940's. Today, RDI has grown into a thriving company, primarily engaged in meat packing and other agricultural business es. In 1992, RDI had more than $400 million in sales. Members of the Rosen family own a majority of RDI's outstanding capital stock.
In January 1984, RDI hired McCallum, who had previously provided lega l serv ices to the company, as Executive Vice President and Chief Executive Office r (CEO). He was named a director in 1986. RDI performed well under McCallum' s command. Accordingly, RDI rewarded McCallum—and three other keyDur

ing the course of his employment, McCallum also received approximately 1 3,300 shares of common stock in RDI through an Employee Stock Ownership Program (ESOP). McCallum's tot al ownership represented nearly 3% of the company's capital stock. -3- employees—with a bonus of $186,815 in cash and 12,000 shares of common stock in th e company. According to RDI, these payments were made because the ke y

1 employees were almost entirely responsible for the financial succ ess of the corporation, becausethe compensation package of the employees had been artificially low, and in order to maintain the unswerving loyalty of th ese employees. The parties did not enter int o a shareholder's agreement or provide any mechanism for the transfer of thos e shares if circumstances changed. By 1991, the amiable relationship between McCallum and RDI deteriorated , ultimat ely resulting in McCallum's termination and removal from the board

. Subsequently, McCallum proposed that RDI redeem his shares for $5 million. RD I respo ndedwith an offer to redeem the shares for $600,000, which was at a smal l premium over the value determined b y the annual valuation for RDI's Employee Stock Ownership Program (ESOP). The parties could not agree on a price and extensiv e litigation has followed. See, e.g. , McCallum v. Rosen's Diversified, Inc. , 41 F.3d 1239 (8th Cir. 1994). The present case involves McCallum's 12,000 shares of RDI common stock which is not contained in the ESOP.
McCallum

alleges that RDI's controlling shareholders have acted unfairl y prejudic ial toward him because they: (1) undermined his authority as CEO; (2 ) excluded him from important company decisions; (3) engaged in conduct directed at mi nimizing the value of the company; (4) terminated his employment; (5) offered t o redeem his shares at an artificially low price; (6) denied him access to company books, re cords, and financial information; (7) engaged in self-dealing, usurped compan y opportunities, and commingled personal ventures with the affairs of the company.-4-

The d istrict court dismissed many of McCallum's allegations as improperl y pleaded derivative claims. The district court dismissed McCallum's request for a buyout of his stock on a subsequent motion for summary judgment. McCallum appeals.
II. DISCUSSION Minnesota law governs the substantive issues in this diversi ty action. See Vrban v. Deere & Co. , 129 F.3d 1008, 1009 (8th Cir. 1997). We give no deference to th e distric t court's interpretation of Minnesota law. See id. The Supreme Court o f Minnesota has not confro nted the issue of when a minority shareholder is entitled to a court ordered buy-out. Thus, "we must determine what that court wou ld probably hold were it to de cide the issue. In making this determination, we may consider relevan t state precedent, an alogous decisions, considered dicta, scholarly works and any other reliable data" Farr v. Farm Bureau Ins. Co. , 61 F.3d 677, 679 (8th Cir. 1995). The district court erred in dismissing certain of McCal lum's allegations as failing to observe the derivative pleading requirements for shareholder proceedings

. McC allum's several assertions were merely examples of unfairly prejudicial conduc t onthe part of the controlling shareholders, not separate claims in and of themselves

. McCallum

sought no relief on behalf of the corporation. Cf. PJ Acquisition Corp. v. Sko glund , 453 N.W.2d 1, 6 (Minn. 1990) (inferring that a shareholder action fo r equ itable relief is not a derivative action). In any event, we find that McCallum i s entitled to equitable relief based on the uncontroverted assertions that were no t dismissed as derivative claims.
Concerned with the vulnerable position of minority shareholders in closely held co rporations, the Minnesota legislature has provided the courts with broad equitabl e authority to protect the interests of minority sha reholders. See Minn. Stat. § 302A.751 (amended 1994 ) (hereinafter "Section 751"). Section 751 provides for the buy-out of a minority shareholder's interest when "the directors or those in control of the-5-

corporation have acted in a manner unfairly prejudicial toward one or mor e sharehol ders in their capacities as shareholders or directors . . . or as officers o r employees of a closely held corporation."
The phrase "unfairly prejudicial" is to be interpreted liberally. See Pedro v

. Pedro , 4 63 N.W.2d 285, 288-89 (Minn. Ct. App. 1990). One commentator, wh o helped draft cer

tain revisions to the Minnesota Business Corporation Act and Section 751, stated that:
The sectio n is remedial in nature and should be liberally construed as an addition to the rights afforded non-controlling shareholders by law and the cor poration's governing documents. The broad scope of Section 75 1 refle cts the Legislature's trust in the ability of the judiciary to achiev e equitable results on the facts appearing in individual cases.
See Jo seph Edward Olson, Statutory Changes Improve Position of Minority Shareholders in Closely Held Corporations, The Hennepin Lawyer , Sept.-Oct. 1983, at 11. In deciding whether to order a buy-out, the courts should consider "th e reasonable expectations of the shareholders" with respect to each other and th e corporation. See Minn. Stat. § 302A.751, subd. 3a (amended 1994). Oftentimes, a shareholder's reasonable expectations include a significant voice in management an d an opportunity to work. See Olson at 23.
We find that the uncontested facts demonstrate that McCallum's reasonabl e expecta tions were defeated. RDI terminated McCallum's employment as CEO an d sub sequently offered to purchase his RDI shares at a small premium over the valu e determine dby an annual valuation for RDI's ESOP. McCallum had received thes e shares as com

pensation for his outstanding service and as an inducement to remain at RDI, in order to foster its continued growth. Although the employment relationship-6-

later deteriorated, our focus is on Mc Callum's reasonable expectations at the inception of the relationship. See Minn. Stat. §302A.751, subd. 3a.
On his t ermination, McCallum was divested of his primary expectations as a minority shareholder in RDI—an active role in the "management o f the corporation and input as an employee." Pedro , 463 N.W.2d at 289. This expectation was particularly reasonable since McCallum was CEO of RDI. We need not extend our holding as far as th e Minnesota Court of Appeals, which held that controlling shareholders tha t terminate the employment of a minority shareholder must make a good-faith effort to buy out the shareholder at a fair price. See Sawyer v. Curt & Co. , 1991 WL 65320, at *2 (Minn. Ct. App. Feb. 12, 1991) (publication order vacated). We simply hold that termin ating the CEO—as opposed to an employee that did not have a significant role in management—and then offering to redeem his stock, which was issued partially to lure him to remain at the company, constituted conduct toward McCallum as a shareholder sufficient to invoke the requirements of the Minnesota Act. Accordingly, we remand the matter for a determination of the fair value of his stock. On remand, the district court shall determine the fair va lue of McCallum's shares in accordance with Minn. Stat. § 302A.751, subd. 2 (amended 1994) and put an end t o this pugnacious litigation. We express no opinion on the fair value of McCallum's shares or whether the ESOP valuation represents fair value.
III. CONCLUSION
Forth e foregoing reasons, we reverse the judgment of the district court an d remand for further proceedings consistent with this opinion.-7-

A true copy.

Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.