In December 2014, Kim Lund, one of four siblings who shared beneficial ownership of Minnesota’s Lund grocery empire, filed a lawsuit against her brother Tres Lund (the CEO of the business entities), the entities themselves, two directors, and a co-trustee of one of Kim’s trusts. In the action Kim sought to divest her Lund business entity interests, and the court decided it would order a buyout. After a trial in February 2017, the district judge entered an order valuing Kim’s business interests and resolving Kim’s request for the removal of certain trustees from her trusts. The district judge’s decision was appealed. On January 14, 2019, the Minnesota Court of Appeals decided the appeal.
The Lund appellate opinion touches numerous issues of interest in Minnesota minority shareholder and trust litigation. This post considers Lund’s contribution to the definition of oppression through denial of a shareholder’s reasonable expectations.
* * * * *
A minority shareholder in a Minnesota corporation may bring a claim for shareholder oppression, alleging that the persons in control of the corporation have acted “in a manner unfairly prejudicial” toward the shareholder. Minn. Stat. § 302A.751, subd. 1(b)(3). If the plaintiff proves her case, the court may order a buy-out of the plaintiff’s shares. Id. subd. 2.
“Shareholder oppression” is evocative, but vague enough to potentially incorporate a wide variety of behavior. Like a partially-completed page in a child’s coloring book, the term has some definition through Minnesota court decisions, but much also remains uncolored. Lund helpfully fills in some of the achromatic spaces on the page:
- Empty assurances of a buyout may constitute oppression. The evidence in Lund included documents dating back to 1992 which showed that Kim was seeking to sell her shares of the Lund entities and the parties shared an understanding that planning was underway to provide her with a means of liquidating her interests. The Lund defendants argued that this shared understanding did not matter for purposes of Kim’s shareholder oppression claim, but both the trial court and Court of Appeals disagreed. This conclusion opens the door for other arguments that majority owners’ actions in stringing along a minority owner, leading her to believe that a buyout will be available soon in the future, are unfairly prejudicial if the stringing-along carries on too long. That is, empty assurances that an owner will be given an opportunity to monetize her ownership interest or liquidate her investment may in and of themselves constitute shareholder oppression, even if the majority owner does not engage in any other wrongful conduct.
- Shareholder agreements are not an invincible defense against a buyout based on subsequent discussions. A shareholder oppression case may hinge on the question whether the plaintiff had a “reasonable expectation” that was defeated. The defendants in Lund argued that Kim could not have a reasonable expectation she would be bought out from the Lund entities, because various documents, including transfer-restriction agreements, prohibited transfers of Kim’s interests except for under specific limited circumstances. Minn. Stat. § 302A.751, subd. 3a lends support to this view, stating that “written agreements” including “buy-sell agreements” are “presumed to reflect the parties’ reasonable expectations.” However, the trial court and Court of Appeals disagreed with the Lund defendants, concluding instead that assessment of Kim’s reasonable expectations “necessarily involves an assessment of communications among the Lund siblings” and could not be resolved “solely” by reference to the written contracts. That is, parol evidence can be used to prove a reasonable expectation. After all, the statute allows the court to consider “the reasonable expectations of all shareholders as they exist at the inception and develop during the course of the shareholders’ relationship with the corporation and with each other.” § 302A.751 subd. 3a (emphasis added).
- A buyout may be ordered without a trial. The trial court granted Kim’s motion seeking a buyout without holding a trial on the issue of whether Kim was entitled to a buyout. The Lund defendants argued that trial was necessary. However, the Court of Appeals concluded that it was proper to order the buyout without a trial, where the defendants did not cite any evidence to support the conclusion that Kim did not have a reasonable expectation of a buyout.
- One act of shareholder oppression can be enough to justify a buyout. The Court of Appeals agreed with the trial court that a single act or omission frustrating Kim’s reasonable expectations as a shareholder was sufficient to support the trial court’s order of a buyout. The conduct at issue was the defendants’ failure to provide Kim with a means of selling her interests in the Lund entities for two decades, even while they continued to “assure Kim it would happen.” The Court of Appeals expressly stated, “The district court concluded it is appropriate to grant a buy-out on motion if the record reflects at least one uncontroverted incident of unfairly prejudicial conduct. We agree . . .”
A shareholder oppression case may hinge on whether the plaintiff had a “reasonable expectation” that was defeated. Lund says empty assurances that shareholders will be given an opportunity to sell their shares may be enough to defeat reasonable expectations, even if there is a shareholder agreement that expressly limits the ability of the shareholders to transfer their shares.
Lund offers hope for shareholders who have sought to sell their shares in a closely held Minnesota corporation or company for some time, yet have been blocked by a share transfer agreement from doing so. If the shareholders can show that the majority owners agreed they could be bought out or promised to provide an opportunity to be bought out, the shareholders may be able to show a reasonable expectation, which then could support a court order under § 302A.751 for a buyout. Conversely, Lund serves as a warning that majority shareholders who do not wish to buy out a minority owner should refrain from the making empty assurances that a buyout will be arranged in the future.
 On February 12, 2019, the Lund defendants filed a petition asking the Minnesota Supreme Court to review the decision of the Court of Appeals. That petition remains pending.