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Vanderbilt Law Review

Authors

Douglas K. Moll

First Page

749

Abstract

The doctrine of shareholder oppression protects the close corporation minority stockholder from the improper exercise of majority control.! Nevertheless, when a close corporation minority shareholder asserts that the majority shareholder has acted "oppressively" towards him, the minority's chance of success may very well depend on the perspective from which shareholder oppression is viewed. Consider the following two decisions:

In Priebe v. O'Malley, the controlling shareholders of a close corporation terminated the employment of Myron Priebe, a minority shareholder, for "unsatisfactory" work performance.! Priebe sued, asserting that the termination amounted to oppressive conduct! The trial court noted that "Priebe was not producing sales and that he was not working well with other employees."" As a consequence, the trial court found that the controlling shareholders had a "legitimate business purpose" for the termination. The Priebe court affirmed the denial of relief, observing that "[b]ased on this record, we cannot find that the majority lacked a legitimate business purpose for breaching its fiduciary duty to Priebe if, in fact, this duty was breached."'

In Balvik v. Sylvester, Elmer Balvik was the minority share- holder of a two-person close corporation." The majority shareholder openly questioned Balvik's job performance and ultimately terminated him as an employee of the company Balvik sued, alleging in part that the majority shareholder was "guilty of oppression and malice by discharging him from employment with the corporation."' Despite the majority's problems with Balvik's job performance, the court con- cluded that oppressive conduct had occurred:

"We find little relevance in whether [the majority shareholder] discharged Balvik from employment for cause .... The ultimate effect of these actions is that Balvik clearly has been "frozen out" of a business in which he reasonably expected to participate. As a result, Balvik is entitled to relief."

Although Priebe and Balvik arose in different jurisdictions, the cases share a number of factual similarities. In both cases, the employment of a minority shareholder was terminated. In both cases, the minority's poor job performance was cited as a justification for the termination. Finally, in both cases, the minority shareholder asserted that the discharge amounted to oppressive conduct. Despite these similarities, only the Balvik court granted relief. In Priebe, the controlling shareholder's justification for the discharge greatly influenced the court's conclusion that no oppressive conduct had occurred. In Balvik, however, such a justification was essentially considered irrelevant to the court's oppression analysis and to its eventual conclusion that relief was warranted.

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