U.S. Bank N. A. v. Cold Spring Granite Co.
2011 Minn. LEXIS 548
| Minn. | 2011Background
- CSG conducted a two-step operation: a reverse stock split reducing minority Class A shares, followed by cash-out of fractional shares at a board-determined price.
- Moore Trusts, as minority owners, were cash-out.75% of Class A stock was held by Alexander and family interests prior to split.
- Board valued CSG using Cobb’s appraisal; fractional shares were redeemed at $986.50 per share, yielding minority loss of ownership
- District court upheld Board’s valuation and rejected dissenters’ rights and equitable relief claims; court of appeals affirmed.
- Moores sought relief under Minnesota statute ch. 302A, asserting fraud, dissenters’ rights, and unfair prejudice; these claims were rejected on review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Board's valuation of fractional shares was fraudulent | Moores contend fraud in valuation | CSG argues valuation was proper and conclusive absent fraud | No fraud; Board valuation conclusive absent fraud |
| Whether dissenters’ rights apply to reverse stock splits | Moores claim dissenter rights apply | CSG argues §302A.471 does not apply here | Dissenters’ rights do not apply in reverse stock split under §302A.423/471 |
| Whether Board’s conduct was unfairly prejudicial under §302A.751 | Moores claim unfair prejudice issued | CSG relies on statutory framework and lack of fraud | Unfair prejudice shown under reasonable-expectations concept; but relief analyzed with broader standards and ultimately not warranted here |
| Whether there was breach of fiduciary duty by majority shareholders | Moores allege breach due to preferential treatment | CSG argues normal squeeze-out permissible; no breach shown | No breach of fiduciary duty found under Minnesota common law for close corporations |
| Whether Cobb’s valuation methodology was legally defective | Moores challenge Cobb’s methods | Valuation methods are deferential and permissible | District court’s acceptance of Cobb’s valuation not erroneous as a matter of law |
Key Cases Cited
- Berreman v. W. Publ’g Co., 615 N.W.2d 362 (Minn.App.2000) (defines unfairly prejudicial in closely held contexts with reasonable expectations)
- Sifferle v. Micom Corp., 384 N.W.2d 503 (Minn.App.1986) (broad interpretation of fraud under §302A.423 discussed)
- Whetstone v. Hossfeld Mfg. Co., 457 N.W.2d 380 (Minn.1990) (recognizes dissent/appraisal rights context and fiduciary duty limits)
- Westland Capital Corp. v. Lucht Eng’g Inc., 308 N.W.2d 709 (Minn.1981) (closely held corporation criteria under common law)
- Advanced Commc’n Design, Inc. v. Follett, 615 N.W.2d 285 (Minn.2000) (adopts deferential valuation standard in determining fair value)