In McCann v. McCann, the Idaho Supreme Court recently reversed and remanded a case for findings on whether the majority shareholders engaged in a “squeeze-out” of a minority shareholder, causing him harm beyond every other shareholder.
On March 13, 2012, Justice Burdick, in writing for the Court, held where the actions of the corporation and its directors harm a minority shareholder, the minority may directly sue the directors without need to give formal demand. In the present case, the majority shareholders worked together to deny the minority shareholder dividends or benefits allowed to the other shareholders. The Court explained that when controlling shareholders act to deprive a minority shareholder of his “reasonable expectation” in the business or a fair return on his investment, as directors, the controlling majority may be sued for breach of fiduciary duty.
The McCann decision is important because it clarified previously conflicting Court precedent, with the effect of expanding remedies available to minority shareholders who have been “frozen out” of the corporation. Prior to this decision, it was unclear whether Idaho only allowed derivative actions for claims alleging injury to the corporation, which are far more difficult to bring to trial. However, in McCann, the Court distinguished derivative shareholder actions from cases where the shareholder alleges harm to himself, personally, noting that the controlling majority has a “heightened fiduciary duty” to the minority and cannot utilize its control of the corporation for their own advantage.
Click here for a link to the decision. For more information about the legal consequences of McCann v. McCann and rights of minority and majority shareholders in direct and derivative actions, contact Terri R. Pickens or Tami E. Springer.