220 A.3d 1119
Pa. Super. Ct.2019Background:
- Linde Corporation (LindeCo), an S-corporation, was controlled by Scott Linde (375 shares) with Barbara Linde as a minority shareholder (125 shares); no shareholders’ agreement existed and bylaws provided for cumulative voting.
- In March 2012 Scott called a special shareholders’ meeting, eliminated cumulative voting, altered bylaws to empower the majority to remove the board, removed the entire board (including Barbara), and the new board terminated Barbara’s employment and cut off her access to corporate records.
- Barbara alleged Scott acted with animus to “squeeze out” and “economically destroy” her, and that Scott and six key employees diverted value among related entities (including a $1.4M payment to a trust and equipment transfers) to her detriment.
- After a liability phase (record submitted to the court) the trial court found Scott breached fiduciary duties, the six employees aided and abetted, and a civil conspiracy existed; the court sua sponte ordered a buyout remedy and set a damages/valuation phase.
- In the damages phase the trial court accepted plaintiff’s valuation expert, set fair value of Barbara’s shares at $4,433,000, awarded prejudgment interest (total judgment $5,392,000), and defendants appealed arguing business-judgment rule protection, improper aiding/conspiracy findings, lack of pleaded buyout remedy, interest, and valuation errors.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Scott breach fiduciary duties by freezing-out Barbara (squeeze-out)? | Barbara: Scott intentionally excluded her from governance and access to information to ‘‘economically destroy’’ her. | Scott: Actions were corporate decisions in best interests of LindeCo and protected by the business-judgment rule. | Court: Affirmed breach — majority has quasi-fiduciary duty in close corporations; evidence supports bad-faith squeeze-out so business-judgment rule inapplicable. |
| Are the six key employees liable for aiding and abetting the breach? | Barbara: They joined the board, cut off Barbara’s access, and substantially assisted Scott’s oppressive conduct. | Employees: Their board actions were proper business decisions protected by the business-judgment rule. | Court: Affirmed aiding-and-abetting — their concerted board conduct assisted the squeeze-out and supports liability under Restatement §876. |
| Civil conspiracy claim against Scott and the six employees? | Barbara: Concerted scheme to deprive her of benefits and income. | Defendants: No malice; they acted in corporate interest; claim not proven. | Court: Liability sustained (defendants failed to preserve some arguments on appeal); record supports concerted wrongful course of conduct. |
| Was ordering a buyout (forced purchase of minority shares) an available remedy though not specifically pleaded? | Barbara: General equitable relief in complaint and proofs supported equitable buyout as a remedy to restore fairness. | Defendants: Buyout was not pleaded and dissenters’ statutory procedures govern involuntary buyouts. | Court: Buyout is a permissible equitable remedy consistent with pleadings’ general prayer and the equities; removal of director would have harmed company, so buyout tailored relief. |
| Prejudgment interest from Dec 31, 2012 appropriate? | Barbara: Interest needed to fully compensate for the taking that began when she was squeezed-out. | Defendants: No sum certain existed pre-judgment; interest improper. | Court: Affirmed award — equitable discretion to award pre-judgment interest where defendant holds money/property rightly belonging to plaintiff; interest runs from date of taking. |
| Valuation: Did court abuse discretion accepting plaintiff’s expert and methodology? | Barbara: Cowhey used market/income approaches, excluded noneconomic related-party leasing, and produced fair-value opinion. | Defendants: Cowhey used non-comparable guideline companies and excluded longstanding business practices; prefer asset approach. | Court: Trial court credited Cowhey, discredited defendants’ asset-based approach and reliance on a limited appraisal; valuation decision affirmed as within factfinder’s discretion. |
Key Cases Cited
- Ferber v. Am. Lamp Corp., 469 A.2d 1046 (Pa. 1983) (majority shareholders owe duty to protect minority interests; majority cannot act solely for self-benefit).
- Viener v. Jacobs, 834 A.2d 546 (Pa. Super. 2003) (squeeze-out of minority in close corporation breaches fiduciary duty; equitable buyout remedy affirmed).
- Cuker v. Mikalauskas, 692 A.2d 1042 (Pa. 1997) (business-judgment rule protects in good-faith decisions; not applicable where bad faith or self-interest shown).
- McCormick v. N.E. Bank of Pa., 561 A.2d 328 (Pa. 1989) (Submission of case on stipulated record is treated like a trial for post-trial preservation rules).
- Kessler v. Broder, 851 A.2d 944 (Pa. Super. 2004) (equitable relief, including mandatory injunctions or buyouts, is available for oppressive conduct in close corporations).
- Lower Frederick Twp. v. Clemmer, 543 A.2d 502 (Pa. 1988) (general prayer for relief allows chancellor to grant equitable relief consistent with the case pleaded).
- Orchard v. Covelli, 590 F. Supp. 1548 (W.D. Pa. 1984) (discussing minority vulnerability in close corporations and squeeze-out as breach of fiduciary duty).
- Wiseman v. Martorano, 175 A.2d 873 (Pa. 1961) (equitable remedies available for breach of fiduciary duty).