Thank You For Submiting Feedback!
A reasonableness standard applies to the adjudication of minority shareholder claims of oppression in Iowa. This standard comports with principles announced in our earlier decisions protecting the interests of minority shareholders in closely held corporations. Management-controlling directors and majority shareholders of such corporations have long owed a fiduciary duty to the company and its shareholders. This fiduciary duty encompasses a duty of care and a duty of loyalty to the corporation. The fiduciary duty also mandates that controlling directors and majority shareholders conduct themselves in a manner that is not oppressive to minority shareholders. The determination of whether the conduct of controlling directors and majority shareholders is oppressive under Iowa Code § 490.1430(2)(b) and supports a minority shareholder's action for dissolution of a corporation must focus on whether the reasonable expectations of the minority shareholder have been frustrated under the circumstances. Majority shareholders act oppressively when, having the corporate financial resources to do so, they fail to satisfy the reasonable expectations of a minority shareholder by paying no return on shareholder equity while declining the minority shareholder's repeated offers to sell shares for fair value.
A minority shareholder of Baur Farms, a family farm corporation, sued the corporation and its majority shareholder, who served as a director and officer of the corporation. The minority shareholder alleged illegal, oppressive, malicious, and fraudulent acts by the majority shareholder had resulted in waste of the corporation's assets and constituted a breach of fiduciary duty. The minority shareholder requested dissolution of the corporation or payment of the fair value of his ownership interest. The district court dismissed the action at the conclusion of the minority shareholder's presentation of evidence in a bench trial. The minority shareholder appealed, contending that the district court erred in dismissing the action.
Under the circumstances, did the district court err in dismissing the minority shareholder’s action against the corporation and its majority shareholder?
The court noted that the term “oppression” was an “expansive term used to cover a multitude of situations dealing with improper conduct which was neither illegal nor fraudulent. Applying a reasonable expectations standard to determining oppression in an involuntary dissolution suit under Iowa Code § 490.1430(2)(b), the court held that the minority shareholder stated a claim by alleging the majority shareholders had paid no return on equity while declining his repeated offers to sell for fair value. In the case of Maschmeier v. Southside Press, Ltd., 435 N.W.2d 377, 380 (Iowa Ct. App. 1988), the court held that an example of oppression was the case of the shareholder-director-officers refusing to declare dividends, but providing high compensation for themselves and otherwise enjoying to the fullest the "patronage" which corporate control entailed. From the foregoing, the court concluded that a remand was necessary to take evidence on fair value under Iowa Code § 490.1434 and to address enforceability under Iowa Code § 490.627(4) of transfer restrictions providing for purchase at book value.