Court Opinion

ID: 9570338
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:22:24.957229+00
Date Added: 2024-06-11T12:06:25.618482
License: Public Domain

Justice Martin
concurring in the result.
Except as herein set forth, I concur in the majority opinion. There are, however, certain aspects of the case that should be discussed that the majority does not address.
In determining whether plaintiffs expectations have been frustrated, the actions of all the participants, including plaintiff, must be considered. The majority fails to address this aspect of the case. In Exadaktilos v. Cinnaminson Realty Co., 167 N.J. Super. 141, 400 A. 2d 554 (1979), aff’d, 173 N.J. Super. 559, 414 A. 2d 994 (1980), plaintiff acquired a twenty percent interest in a corporation that operated a restaurant. He expected to learn the restaurant business and participate in management. Unfortunately, he did not get along with the other employees and stockholders and was fired for what the court viewed as “unsatisfactory performance.” In deciding plaintiffs claim for relief, the court considered the propriety of the actions by the controlling shareholders. The court found that the opportunity had been offered plaintiff and it was lost through no fault of the defendants. In weighing plaintiffs claim against the disruptive effects the grant of relief would have upon the business, the court found it appropriate to consider the actions of all parties in determining the cause of the frustration of plaintiffs expectations.
The approach in Exadaktilos is appropriate under the law of North Carolina. The statute itself, N.C.G.S. 55-125.1(b), provides relief may be granted "whenever the circumstances of the case are such that relief, but not dissolution, would be appropriate.” This mandates a consideration and balancing of all the circumstances of the case in determining whether relief should be granted and, if so, the extent, nature and method of such relief.
This Court forecast this procedure in Dowd v. Foundry Co., 263 N.C. 101, 139 S.E. 2d 10 (1964), a case involving N.C.G.S. 55-125 (a)(4). We stated: “We are not required, at this stage, to de*315termine to what extent the interests of other shareholders may be balanced against those of one complaining shareholder who seeks liquidation and dissolution.” The clear holding of Dowd is that the interests of the other shareholders must be considered and balanced against those of the complaining shareholder in determining whether to grant relief and, if so, the nature, extent and method of relief. This principle should be applied in the present appeal.
The decision whether to grant the statutory relief involves equity and the discretionary power of the court. Id. “Equity cannot permit itself to be used by a stockholder who simply wishes to get out of a bad bargain . . . .” Hornstein, A Remedy for Corporate Abuse — Judicial Power to Wind Up a Corporation at the Suit of a Minority Shareholder, 40 Col. L. Rev. 220, 235 (1940). Cf. Jackson v. Nicolai-Neppach Co., 219 Or. 560, 348 P. 2d 9 (1959) (plaintiff has burden of proving equitable grounds for relief).
Another factor to be considered by the court in determining whether to grant relief is whether the minority shareholder has diligently pursued all of the other available statutory means for the protection of his rights and that after doing so “[liquidation [or alternative relief under N.C.G.S. 55-125.1] is reasonably necessary for the protection of [his] rights or interests . . . .” N.C. Gen. Stat. § 55425(a)(4) (1982). See Murphy v. Greensboro, 190 N.C. 268, 129 S.E. 614 (1925). The majority shareholders and the corporation should not be subject to dissolution, the most drastic form of relief available, where other statutory rights may provide an adequate remedy for the minority shareholder. This is in accord with the general rule that equitable relief will not ordinarily be granted when plaintiff has an adequate remedy at law. A.E.P. Industries v. McClure, 308 N.C. 393, 302 S.E. 2d 754 (1983). Such statutory rights include, e.g., the minority’s right to attempt to gain representation on the board of directors under N.C.G.S. 55-25 and the right to compel the payment of dividends under N.C.G.S. 55-50.
In determining whether to grant equitable relief under N.C.G.S. 55-125.1, the trial court must consider all the circumstances of the case. If it is determined that plaintiff’s rights or interests require protection because of plaintiff’s own conduct, it would be improper to grant equitable relief. He who seeks *316equity must do equity. Transit, Inc. v. Casualty Co., 285 N.C. 541, 206 S.E. 2d 155 (1974); Roberson v. Pruden, 242 N.C. 632, 89 S.E. 2d 250 (1955); Hillman, The Dissatisfied Participant in the Solvent Business Venture: A Consideration of the Relative Permanence of Partnerships and Close Corporations, 67 Minn. L. Rev. 1 (1982). The reasons why the complaining shareholder’s interests require protection is highly relevant in the resolution of the case.
The court should also consider what effect the granting of relief will have upon the corporation and other shareholders. Will it interfere with the corporation’s ability to attract financing for its business? Will it interfere with its ability to attract additional capital? Will it require burdensome financing upon the corporation or the shareholders? Will it interfere with the rights of creditors? If a buy-out of plaintiffs shares is forced upon the company, it may be far from painless. If it is determined that the granting of relief will be unduly burdensome to the corporation or other shareholders, the trial court should consider this in determining whether to grant relief and, if so, whether this should affect the purchase price or value attached to plaintiffs shares or the method of payment. It is an equitable proceeding. Dowd v. Foundry Co., supra, 263 N.C. 101, 139 S.E. 2d 10.
Another circumstance to be considered is whether plaintiffs condition is a result of oppression or bad conduct by the other shareholders. Oppression for these purposes may be defined as: burdensome, harsh and wrongful conduct; a lack of fair dealing in the affairs of the company to the detriment of other shareholders; a violation of fair play on which every shareholder is entitled to rely. See, e.g., Exadaktilos, supra; White v. Perkins, 213 Va. 129, 189 S.E. 2d 315 (1972). In making this determination, the court will consider the substance of the conduct rather than its form. Polikoff v. Dole & Clark Building Corp., 37 Ill. App. 2d 29, 184 N.E. 2d 792 (1962).
Oppression in this context is close to a breach of fiduciary duty. The West Virginia Supreme Court, in a “reasonable expectations” case, analyzed oppression from the point of view of breach of a fiduciary duty. It held in substance that oppressive conduct in a close corporation is closely related to the fiduciary duty of good faith and fair dealing owed by majority stockholders to minority stockholders. Masinter v. Webco Co., 262 S.E. 2d 433 *317(W. Va. 1980). See also, Fox v. 7L Bar Ranch Co., 645 P. 2d 929 (Mont. 1982).
In this connection, I cannot agree that merely because plaintiffs expectations were not fulfilled it necessarily follows that the majority stockholders were guilty of oppression.
Another circumstance to be considered is the fact that most, if not all, of plaintiffs stock was given to him by his father. He did not contribute his own hard-earned cash to the enterprise. This could indicate that he did not assume the risk of having his investment held hostage by the majority, or it could be that one has to accept what one gets by gift — in this case, a locked-in minority interest in a family corporation.
With respect to the Republic management issue, in order for plaintiff to succeed, he must prove that (a) he has standing as an Eastern shareholder to bring suit on this claim against Ira as an Eastern director and officer, and (b) Ira in his role as an Eastern director and officer breached a fiduciary duty owed to Eastern not to usurp a corporate opportunity of Eastern. To establish the usurpation of a corporate opportunity, plaintiff must prove that: (1) the opportunity was either essential to the corporation or was one in which it had an interest or expectancy; (2) the corporation was financially able to take advantage of the opportunity itself; and (3) the party charged with usurping the opportunity did so in an official rather than an individual capacity. Upon such showing, the burden shifts to the defendant to prove the entire fairness of the transaction and that it was free from oppression, imposition and actual or constructive fraud. Thompson v. Shepherd, 203 N.C. 310, 165 S.E. 796 (1932); Schreiber v. Bryan, 396 A. 2d 512 (Del. Ch. 1978). See generally 56 Nw. U. L. Rev. 608 (1961); 16 A.L.R. 4th 784 (1982).
The foregoing are additional circumstances the trial judge should consider in determining the reasonable expectations of plaintiff and whether to grant equitable relief to plaintiff and, if so, the nature and method of such relief. They are required by the “circumstances of the case” standard of N.C.G.S. 55-125.1(b), the rules governing the exercise of discretionary power by the trial judge, N.C.G.S. 55-125.1(a), and the rules for granting equitable relief, and they are supported by Dowd v. Foundry Co., *318supra, 263 N.C. 101, 139 S.E. 2d 10. See generally Dissatisfied Participant, supra.
Chief Justice Branch and Justice COPELAND join in this concurring opinion.