Opinion ID: 1009651
Heading Depth: 3
Heading Rank: 2

Heading: Counts II-V

Text: The remaining claims can be considered together as essentially a single claim. Schupp alleges that Jump!, as a corporate entity, is liable to him for breach of fiduciary duty as a result of the actions of Von Dette and Engle, who were directors, officers, and majority shareholders. Specifically, Schupp contends that Von Dette and Engle owed him a fiduciary duty which they breached by misrepresenting or failing to disclose material facts about the acquisition of Jump! by LDS. According to Schupp, he was not fully informed of all of the relevant information when he agreed to cash out his equity interest in Jump!. The parties agree that Virginia law applies to this claim. The district court assumed for the sake of analysis that, under Virginia law, a closely held corporation itself, as opposed to its officers or directors, owes a fiduciary duty to an individual minority shareholder. Although we need not decide here whether Virginia law so provides, we note our doubts that a shareholder can maintain an 8 SCHUPP v. JUMP! INFORMATION TECHNOLOGIES, INC. action for breach of fiduciary duty directly against the corporation itself. See Radol v. Thomas, 772 F.2d 244, 258-59 (6th Cir. 1985); Jordan v. Global Natural Res., Inc., 564 F. Supp. 59, 68 (S.D. Ohio 1983). Virginia law may permit an individual shareholder to bring an action for breach of fiduciary duty against the directors or officers of a closely held corporation, see Byelick v. Vivadelli, 79 F.Supp.2d 610, 625 (E.D. Va. 1999), but we see no indication Virginia courts would permit such an action directly against the corporation.4 The district court concluded that Schupp’s claims failed as a matter of law for two reasons: (1) Schupp failed to demonstrate that material facts were misrepresented to or concealed from Schupp; and (2) Schupp did not suffer financial loss as a result of any alleged breach of fiduciary duty. First, Schupp contends that he was induced to cash out his equity interest in Jump! by Von Dette’s and Engel’s representation that Jump!’s bid to repurchase Schupp’s 39,000 shares at 39 cents per share ($15,210) offered him a premium since Schupp had paid only 25 cents per share ($9,750) a few months earlier. Schupp complains that since Von Dette and Engle received almost 39 cents per share for their own shares, Schupp really received no premium at all. Schupp’s position largely ignores the fact that Beardsley, Jump!’s chief technical officer, cashed his shares out at only 25 cents per share, and that the other three shareholders, including Beardsley, held voting shares while Schupp held nonvoting shares. In view of these facts, the district court rejected Schupp’s contention that Von Dette’s and Engle’s statement that Jump!’s offer was at a premium constituted a material misrepresentation. On appeal, Schupp points to nothing in the record suggesting that he was promised more per share than the other three shareholders. Accordingly, we agree with the district court for the reasons stated in its opinion. 4 This case is not controlled by Simmons v. Miller, 544 S.E.2d 666, 675 (Va. 2001), which rejects the proposition that a shareholder can bring an individual action on behalf of the corporation, rather than a derivative suit, for breach of fiduciary duties by a director. Schupp’s claims are based on alleged individual injuries, not injuries to Jump! as a corporate entity. SCHUPP v. JUMP! INFORMATION TECHNOLOGIES, INC. 9 Next, Schupp contends that Von Dette and Engle breached their fiduciary duties to Schupp by failing to disclose the terms of their own employment agreements with LDS. Essentially, Schupp claims that had he been aware of the generous employment terms Von Dette and Engle stood to gain through the acquisition — or lose if it failed — he would likely have taken a very hard look at the sufficiency of the consideration he received for his interest in Jump!. Brief of Appellant at 25. The district court rejected this contention as speculative since Schupp failed to offer any evidence to support a conclusion that he received less than fair consideration for his shares or that Von Dette or Engle would have offered more. We agree with the conclusion of the district court for the reasons stated in its opinion. Moreover, it is implicit in Schupp’s argument that, because LDS’s acquisition of Jump! was contingent upon Von Dette and Engle acquiring all outstanding shares, including Schupp’s, Schupp could have caused complications by refusing to sell. Thus, Schupp suggests that Von Dette and Engle might have been willing to pay more to ensure the success of the acquisition. However, Schupp had the ability to disrupt the acquisition regardless of the terms of employment between Von Dette and Engle. As the district court noted, this fact should have been apparent to Schupp since the stock purchase agreement he signed indicated that his sale of Jump! stock was contingent upon the sale of Jump! to LDS and referred specifically to the stock purchase agreement between LDS and Von Dette and Engle (which, in turn, explained that the acquisition was contingent upon Schupp’s selling his shares). Finally, Schupp contends that he was not provided sufficient information to make a truly informed choice regarding his unvested Jump! stock options. Essentially, Schupp asserts that Von Dette and Engle failed to disclose that Schupp’s remaining Jump! stock options would vest as a result of the acquisition. He suggests that if he had been adequately informed, he would not have agreed to terminate his Jump! stock options in exchange for LDS stock options. Rather, he would have exercised his option to purchase the remaining 39,000 Jump! shares and cashed them out immediately. Schupp’s original stock option agreement with Jump! provided in part as follows: 10 SCHUPP v. JUMP! INFORMATION TECHNOLOGIES, INC. If: (A) [Jump!] should (i) merge or consolidate with another corporation or entity under circumstances where [Jump!] is not the surviving corporation or entity . . . and (B) as a result of [such a merger] . . ., [Schupp] shall fail to receive a bona fide offer of employment with power and authority analogous to [Schupp’s] title and/or office prior to the merger . . . then 100% of such [stock] Options not yet vested shall immediately vest . . . . J.A. 97. Thus, Schupp knew, or should have known, that if LDS did not extend to Schupp an offer of employment for a position similar to the one he held at Jump!, then Schupp’s stock options vested immediately. Nevertheless, he agreed to exchange his Jump! stock options for LDS stock options, apparently without attempting to learn whether he would receive such an offer. Schupp’s failure-to-disclose argument, at bottom, is based on the fact that Von Dette and Engle knew prior to the acquisition that LDS intended to offer Schupp a position carrying the title of Account Executive. According to Schupp, Von Dette and Engle also knew that this new position would not be equivalent to his position at Jump! and that, as a result, Schupp’s shares would vest immediately upon the completion of the acquisition. Schupp concludes that their failure to disclose all of this was a breach of their fiduciary duties to him. The district court rejected this claim as well, concluding that the two positions were analogous in terms of power and authority and that any differences could be attributed to the much larger size of LDS. The record contains sworn testimony from the chief financial officer of LDS that Schupp was hired to perform the same business development job he performed at Jump! at the same level of compensation and that the two positions were roughly the same in light of the SCHUPP v. JUMP! INFORMATION TECHNOLOGIES, INC. 11 size disparity between the two companies. Schupp points to nothing in the record, other than unsworn discovery responses, to contradict this. Moreover, there is nothing in the record to suggest that Von Dette and Engle believed these positions were not roughly equivalent — in fact, both men attested to their belief that the positions were the same. Accordingly, we affirm the award of summary judgment to Jump! on this basis as well.5