381 P.3d 903
Multnomah Cty. Cir. Ct., O.R.2016Background
- Graydog Internet is a closely held corporation with two shareholders: Westervelt (majority) and Giller (minority). A 2004 shareholder agreement is central to the dispute.
- Graydog sued Giller in 2013 seeking a declaration that Giller was an at‑will employee and could be terminated; Giller answered, denied at‑will status, and asserted counterclaims.
- Giller then filed a third‑party complaint against Westervelt, incorporating his counterclaim allegations and asserting causes styled as breach of contract and breach of contractual duty of good faith and fair dealing based on alleged self‑interested conduct by Westervelt.
- Graydog elected under ORS 60.952(6) to buy Giller’s shares for $300,000, asserting Giller’s third‑party claims triggered the statutory buyout mechanism.
- Giller sought declaratory relief that ORS 60.952(6) did not apply; the trial court granted that relief, holding the buyout election applies only to plaintiffs who “commence an action” and that Giller’s claims were not the type covered by ORS 60.952.
- The Court of Appeals reversed: it held filing a third‑party complaint can be the “filing of a proceeding under” ORS 60.952(1), and that the real character of some of Giller’s claims was oppression/fiduciary‑duty type claims covered by ORS 60.952(1).
Issues
| Issue | Plaintiff's Argument (Giller) | Defendant's Argument (Graydog/Westervelt) | Held |
|---|---|---|---|
| Whether a third‑party complaint (or counterclaim) can constitute the “filing of a proceeding under” ORS 60.952(1) and thus trigger the buyout election in ORS 60.952(6) | A proceeding means an original action; counterclaims/third‑party complaints do not commence a separate proceeding for subsection (6) | The filing of a third‑party complaint that alleges claims under ORS 60.952(1) is the filing of a proceeding, so subsection (6) can be invoked | The filing of a third‑party complaint can constitute the “filing of a proceeding under” ORS 60.952(1) |
| Whether the substance of Giller’s third‑party claims are the type of shareholder ‘‘oppression’’ claims covered by ORS 60.952(1) despite being labeled as contract claims | The claims are contract claims; oppression under ORS 60.952 is tort/fiduciary in nature and labeling matters | The court should look to the real character of the claims (gravamen): allegations describe self‑interested, fiduciary‑breach conduct harming the minority, i.e., oppression | The court looks to the real character; at least some of Giller’s claims (bylaws breach, bad‑faith dealing) are in substance oppression/fiduciary‑duty claims under ORS 60.952(1) |
| Whether labels (contract vs. oppression) control availability of ORS 60.952 remedies | Labels control; contract pleading excludes ORS 60.952 relief | Labels do not control; court examines predominant characteristics, legal source of liability, factual setting, injuries, and relief sought | Labels do not control; examine gravamen — here gravamen supports ORS 60.952 application |
| Whether applying ORS 60.952(6) to third‑party claims improperly enables a ‘‘squeeze‑out’’ of minority shareholders | Applying (6) will allow majority to weaponize buyout and force squeeze‑outs; minority should control invocation | The statutory scheme (including court determination of fair value and consideration of impact of wrongful acts on value) is the legislature’s choice; policy issues belong to legislature | Court declines to rewrite statute; statutory buyout election applies as interpreted, policy concerns for legislature |
Key Cases Cited
- Wallulis v. Dymowski, 323 Or 337 (treating third‑party complaint and third‑party action synonymously)
- O’Connell, Goyak & Ball v. Silbernagel, 297 Or 207 (third‑party complaint described as a separate action)
- State v. Gaines, 346 Or 160 (statutory construction methodology)
- Hickey v. Hickey, 269 Or App 258 (discussion of ORS 60.952 purpose and buyout as preferred remedy for oppression)
- Baker v. Commercial Body Builders, 264 Or 614 (oppressive conduct tied to fiduciary duty of majority shareholders)
- Naito v. Naito, 178 Or App 1 (fiduciary duty and oppression in close corporations)
- Securities‑Intermountain v. Sunset Fuel, 289 Or 243 (real character/gravamen analysis to determine nature of claim)
- Htaike v. Sein, 269 Or App 284 (look past labels to gravamen of action)
- Noakes v. Schoenborn, 116 Or App 464 (minority shareholders may bring direct claims for harm distinct from corporation)