The following is a ruling I received from the Georgia Court of Appeals
regarding a classic minority squeeze out scenario. I have
included this Order because it provides a very useful summary of all the typical claims and
defenses which are raised in a case of minority oppression. The underlying
facts of the case are useful as they involved all of the steps routinely
taken by a majority shareholder to destroy the value of a minority shareholder's
interest in a small, privately held company.
In this case, the Plaintiff began a company to perform adjusting services
for insurance companies and other groups. The Plaintiff was an experienced
professional in the field of adjusting property claims, and shortly thereafter
two of his professional colleagues and friends joined him to form a full-service
independent adjusting company with each principal owning one-third of
the stock. After several successful years, a personality dispute arose
between the Plaintiff and his two colleagues. An argument ensued one afternoon,
after which Plaintiff took time off for a medical condition. When he returned
to the office, he discovered that the locks had been changed. The majority
shareholders then cancelled all of the Plaintiff's salary and benefits
and refused to declare a profit dividend at the end of the year. Plaintiff
As the attached Order states, the Court ruled that the Defendants, including
the corporation itself, were liable to the Plaintiff for damages constituting
the tort of 'minority oppression,' specifically breach of fiduciary
duties and fraud. Interestingly, the Court went further than most courts
dealing with these types of torts and held that the Defendants had also
interfered with the Plaintiff's employment opportunities.
Because the Plaintiff had been an officer and director of the small corporation,
the company was required to follow the procedures set forth in the Bylaws
for holding meetings of the Board of Directors to vote to terminate an
officer. The Court ruled that by failing to follow this procedure in the
Bylaws when it terminated the Plaintiff, an officer of the company, the
corporation was liable for damages for the tort of wrongful discharge,
even though Georgia is an employment at will state and companies are generally
free to terminate an employee without liability. Further, the Court ruled
that by failing to follow the Bylaws and wrongfully terminating the Plaintiff,
the corporation and the Defendants were also subject to damages for tortuously
interfering with the Plaintiff's employment with the corporation.
This cause of action is extremely rare in employment settings and is generally
available only where the employee/officer has a contract of employment.
Finally, the Court ruled against the Defendants in their claim of tortious
interference with business relationships and corporate opportunities.
The Defendants had tried to allege that the Plaintiff had wrongfully competed
with them after being termnated. The Court of Appeals followed a long
line of caselaw holding that upon being terminated from the company, the
Plaintiff was free to compete, absent a covenant not to compete.
If you or your company is involved in the termination of an officer/shareholder,
I suggest taking a look at the
enclosed Order as it provides a very useful overview of most of the torts and claims
that can be raised in such a situation and provides a good summary of
the law in this area.