The End of the Appellate Road for Lund

In Litigation Process, Minnesota Appellate Decisions, Trusts by Joseph PullLeave a Comment

My previous discussion of the Minnesota Court of Appeals’s opinion in the Lund litigation (here, here, and here) noted that on February 12, 2019, the Lund defendants filed a petition asking the Minnesota Supreme Court to review the decision of the Court of Appeals. On March 27, 2019, the Supreme Court declined to do so. Accordingly, the Court of Appeals’s opinion will remain the final word on the issues it addresses, at least as far as Lund goes.  Only time will tell whether, and how, the appellate courts will develop or modify Lund‘s answers concerning the questions Lund addressed about shareholder oppression, the reasonable expectations of shareholders in closely-held businesses, business fair value, and claims against trustees.

Claims Against Trustees: Lund Again

In Litigation Process, Minnesota Appellate Decisions, Trusts by Joseph PullLeave a Comment

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.[1] The Lund appellate opinion touches numerous issues of interest in Minnesota minority shareholder and trust litigation. This post considers the appellate fate of Kim’s claims against the trustees of her trusts. *    *     *     *     * Along with her shareholder oppression claims, Kim also asked the Hennepin County court to grant her relief concerning co-trustees who managed trusts that owned Kim’s beneficial shares of the Lund business entities. Kim alleged two co-trustees, attorney Stanley Rein and her brother Tres Lund, had breached their fiduciary duties, and she wanted the court to remove Tres and Rein as trustees. No harm, no foul. The trial court rejected Kim’s claims against Tres and Rein for breach of fiduciary duty. The Court of Appeals, without even discussing the wrongdoing that Kim alleged, agreed. Kim had failed to challenge the trial court’s determination that she offered no evidence of damages, and damages are an essential element of a breach of fiduciary duty claim.[2] Without showing damages, a plaintiff cannot prevail on a breach of fiduciary duty claim, no matter what bad acts the defendant did or did not …

Determination of Business Fair Value, Modeled by Lund

In Business Valuation, Minnesota Appellate Decisions, Trusts by Joseph Pull1 Comment

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.[1] The Lund appellate opinion touches numerous issues of interest in Minnesota minority shareholder and trust litigation. This post considers the process of assessing the fair value of a business entity, as illustrated by Lund. *     *     *     *     *

Empty Assurances as Shareholder Oppression

In Minnesota Appellate Decisions, Shareholder Agreements, Shareholder disputes, Trusts by Joseph Pull1 Comment

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.[1] 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 Little Contract, a Little Latin, a Little Property

In Legal Interpretation, Minnesota Appellate Decisions, Property by Joseph PullLeave a Comment

(Unenforceable Terms, Expressio Unius, and the Right of Redemption) Minnesota courts enforce contracts.  Someone who signs an agreement cannot later escape it by saying he never read it,[1] and or that it is harsh.[2] A little hyperbolically, Minnesota courts occasionally explain that contracts must be enforced or else “chaos would prevail in our business relations.”[3] And yet. In certain circumstances, a Minnesota court will refuse to enforce the plain terms of a contract. One example of particular importance to borrowers and lenders is the statutory right of redemption of foreclosed property. The Minnesota Court of Appeals has decided this right cannot be waived. If the borrower signs an agreement waiving it, the waiver is not enforceable.[4]

Loophole Prevented: Selling a Business During a Divorce

In Marital Dissolution, Minnesota Appellate Decisions, Supreme Court by Joseph PullLeave a Comment

Stacking together two major life events – a divorce and the sale of a multi-million-dollar business – can be a recipe for major headaches and complex interacting consequences.  In the recent Minnesota Gill case, a business sale during a divorce revealed a potential loophole through which an owner-executive tried to avoid sharing assets with a soon-to-be ex-spouse – but the state supreme court blocked the maneuver. On October 24, 2018, the Minnesota Supreme Court issued a decision requiring an ex-husband to split the proceeds of an “earn-out” provision with his ex-wife, notwithstanding that the contract granting the earn-out was signed after the valuation date in the marital dissolution case. The earn-out was part of the purchase agreement for a valuable company. The case presented a question of the boundary between two fundamental principles of Minnesota marital dissolution law: All property acquired during the marriage is subject to division between the ex-spouses.[1] Property acquired by a spouse after the valuation date in the dissolution is not subject to division between the ex-spouses.[2]

Those Ubiquitous Arbitration Clauses

In Arbitration, Litigation Process by Joseph PullLeave a Comment

How many times have you agreed to “binding arbitration” in case of a dispute over a product you bought or a service you signed up for? Whether you know it (because you conscientiously read contracts before signing them) or not (you don’t), there’s a good chance your answer should be “a lot.” Arbitration provisions now crop up all over the place, from the terms for computer software[1] to cable TV contracts[2] to bank checking and savings accounts agreements[3] to the purchase agreement for a new car. Arbitration clauses commonly appear in commercial contracts and professional services agreements. They might be included in a shareholder agreement for a closely held company. Sometimes they are used in places they aren’t supposed to be used.[4] What does an arbitration agreement accomplish?

SEC Patrols the Bakken: “Making” Statements about Stocks

In Legal Interpretation, Oil & Gas Investments, Securities Fraud by Joseph PullLeave a Comment

Securities fraud litigation bubbles up with the oil in the Bakken. For example, the U.S. District Court for the Southern District of New York[1] was presented with the question whether defendant Eric Dany, an established stock commentator with his own “Stock Prospector” brand and newsletter, could be held responsible under the SEC’s Rule 10b-5 as the “maker” of allegedly misleading statements about the stock of Norstra Energy Inc., a would-be Bakken player. A third party paid Dany for the use of his name in publishing a statement in promotional materials: My name is Eric Dany. I’m editor and publisher of Eric Dany’s Stock Prospector, Main Street Research . . . Now I’m predicting that NORX could be my best ever call! I believe the company’s estimated 8.5 billion barrels of oil in place could easily fetch $25 a share in a takeover! Act now, before a takeover move, and you could make a fortune! . . . Don’t wait! As you’ll see when you read on, I believe one of the majors may be reading a takeover offer that, the minute it leaks out, could send this stock flying! The SEC sued Norstra Energy, its CEO, and Dany, alleging the statement (and others) was misleading. Exchange Act Rule 10b-5(b), 17 C.F.R. § 240.10b-5(b), prohibits making untrue statements of material fact in connection with the purchase or sale of securities. Dany argued that, as a matter of law, he could not be held responsible because he did not “make” the statement, since it was published by someone else. The Supreme Court decided in 2011 that “[f]or purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement.”[2] Accordingly, showing that someone else published an allegedly fraudulent statement is not enough to escape responsibility. …

Peeking Behind Company Curtains

In Corporate Law, Shareholder Strategies by Joseph PullLeave a Comment

You own some shares of a business, but you don’t work there and you’re not on the board of directors. The CEO just sent a letter regretfully informing you and the other owners that there won’t be any dividends this year. But you know from one of his neighbors that the CEO just started a bottom-to-top renovation of his house, and he’s also driving a new vehicle that must have cost at least six times as much as the car he bought last year. How can you find out what’s going on inside the company? You’re the president of a company, and one of the smaller shareholders is demanding access to the company’s financial and customer data. Last month this same shareholder asked if you were interested in buying his shares. You suspect he’s now asking for company information because he wants to start his own competing business. Can you refuse to let him see any of the company records?

A Viking, a Patriot, And Two Arbitrators Appear in Front of the Bar . . .

In Arbitration, Eighth Circuit, Litigation Process by Joseph PullLeave a Comment

The National Football League won two high-profile legal battles against superstar players in 2016, in both cases winning on appeal after a federal district court judge ruled against them. The legal considerations that proved decisive in the Tom Brady and Adrian Peterson cases were not particularly complicated or new, and without celebrity and salient secondary issues swirling around them, the cases would neither have received nor deserved much attention. But they do provide excellent examples of the process by which American courts handle an arbitration award.