Warren v. Campbell Farming Corp.
2011 MT 324
| Mont. | 2011Background
- Campbell Farming Corp. is a closely-held Montana company controlled by Stephanie Gately (51%) and Warren and Crocker (49% total).
- Robert Gately, Stephanie’s son, served as company president and director alongside Stephanie and Warren.
- Stephanie proposed a $1.2 million bonus to Robert in stock and cash for past service and to prevent resignation; no employment contract or conditions guarded the bonus.
- Warren and Crocker voted against the bonus; Stephanie voted in favor, resulting in approval.
- District Court held the bonus lacked consideration and analyzed it as a director’s conflicting-interest transaction, reviewable under MBCA safe harbor for conflicts of interest; it found the safe harbor satisfied and applied business judgment to approve the action.
- The Tenth Circuit certified three Montana-law questions addressing whether safe harbor extends to a past-service bonus, whether business judgment applies to conflicts-of-interest, and whether Daniels governs closely-held fiduciary duties in this context.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can safe harbor extend to a conflict-of-interest bonus lacking consideration? | Warren and Crocker contend no, as lack of consideration precludes a valid transaction. | Campbell argues safe harbor can apply to any conflict-of-interest transaction if fair to the corporation. | Yes; the bonus constitutes a reviewable “transaction” under safe harbor. |
| Does the business judgment rule apply to director-conflict transactions? | Plaintiffs argue the rule does not apply to loyalty/conflict claims. | Defendants contend the rule may apply if the transaction meets care and fairness standards. | No; business judgment rule does not apply to director-conflict-of-interest claims. |
| Should Daniels govern analyzing fiduciary duties in a conflict-of-interest context for a controlling shareholder? | Daniels should apply to balancing legitimate business purpose against minority harm. | Daniels applies only to claims limited to minority-shareholder oppression, not to director-conflict review. | Daniels applies to non-conflict fiduciary-duty claims by majority against minority; Daniels does not govern the director-conflict review. |
Key Cases Cited
- Daniels v. Thomas, Dean & Hoskins, Inc., 246 Mont. 125, 804 P.2d 359 (Mont. 1990) (establishes Daniels balancing framework for controlling shareholder duties)
- Ski Roundtop, Inc. v. Hall, 202 Mont. 260, 658 P.2d 1071 (Mont. 1983) (business judgment framework for directors; conflict rule context discussed)
- Wilkes v. Springside Nursing Home, Inc., 353 N.E.2d 657 (Mass. 1976) (recognizes balancing of legitimate business purpose against minority harm)
- Whitehorn v. Whitehorn Farms, Inc., 2008 MT 361, 346 Mont. 394, 195 P.3d 836 (Mont. 2008) (fiduciary-duty duties among close corporation shareholders; duty of loyalty)