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Pedro v. Pedro - 489 N.W.2d 798 (Minn. Ct. App. 1992)

Rule:

The relationship among shareholders in closely held corporations is analogous to that of partners. Shareholders in closely held corporations owe one another a fiduciary duty. In a fiduciary relationship the law imposes upon them highest standards of integrity and good faith in their dealings with each other. Owing a fiduciary duty includes dealing openly, honestly and fairly with other shareholders.

Facts:

Alfred, Carl, and Eugene Pedro are brothers who each owned a one-third interest in The Pedro Companies (TPC), a closely held Minnesota corporation, which manufactures and sells luggage and leather products. TPC has annual sales of approximately $ 6 million. Carl has worked for TPC since 1940 and he is currently employed by the company. Eugene has worked for TPC since 1939 and is also currently employed by the company. Alfred worked for TPC for 45 years and was fired in 1987 at the age of 62. Each brother, as an equal shareholder, received the same benefit and compensation as the others. Each shareholder had an equal vote in the management of the company. After Alfred Pedro sought an investigation into missing corporate funds, he was fired by the Carl and Eugene in 1987. Alfred filed an action requesting dissolution of TPC. Carl and Eugene Pedro and TPC, moved that the action proceed as a buyout pursuant to Minn. Stat. § 302A.751 (1990). A jury awarded damages, but in an earlier appeal, the appellate court determined the jury's verdict was merely advisory and remanded the case to the trial court to make findings. On remand, the trial court awarded damages for breach of fiduciary duty and for wrongful termination of lifetime employment. Carl and Eugene Pedro filed this second appeal.

Issue:

Did the trial court err in its findings that the majority shareholders breached their fiduciary duties to Alfred and wrongfully terminated his contract for lifetime employment?

Answer:

No

Conclusion:

The Minnesota appellate court held that there were many examples of Carl and Eugene not acting openly, honestly, and fairly with Alfred and that their own admissions supported a finding of a breach of fiduciary duty. The court also concluded that the measure of damages for the buyout of Alfred was proper. The court held that the fair value of the shares was greater than the purchase price for the buyout; the difference was the measure of Alfred's damage resulting from having been forced to sell his shares in the company. The court held that it was reasonable for the lower court to determine that Alfred had a contract not terminable at will.

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