Alaska Plastics, Inc.

Supreme Court of Alaska · Corporations

CorporationsClose corporationsMinority shareholder remediesDerivative suitsclose corporationminority shareholderoppressionfiduciary duty

Facts

Alaska Plastics was a closely held corporation formed by Stefano, Gillam, and Crow, each of whom remained the only directors and officers; Muir later acquired 150 shares through a divorce settlement and became a one-sixth shareholder. Muir was not properly notified of several shareholder meetings, never received money from the corporation, while the three insiders voted themselves director's fees, paid Gillam a salary, and apparently had some personal expenses paid by the corporation. The corporation offered to buy Muir's shares first for $15,000 and later $20,000, but she rejected both offers as too low. After trial, the superior court treated the continued retention of her shares after the 1974 offer as oppressive and ordered the corporation to buy her stock at a court-determined fair value.

Issue

May a court order a close corporation to purchase a minority shareholder's stock at a court-determined fair value solely because the corporation made an offer that the shareholder rejected and the trial court deemed unfair? More broadly, what remedies are available to a minority shareholder in a close corporation who claims she was excluded from benefits given to the controlling shareholders, and was dismissal of her derivative claim proper?

Rule

A minority shareholder in a close corporation cannot obtain a compelled corporate purchase of her shares based solely on an unaccepted offer by the corporation, even where shareholders in close corporations owe each other fiduciary duties. A forced buyout may be available as an equitable alternative to liquidation if the shareholder proves on an appropriate record that those in control acted illegally, oppressively, or fraudulently, or wasted or misapplied corporate assets under AS 10.05.540. Where controlling shareholders receive special benefits not shared by the minority, the proper inquiry is whether the minority was denied equal participation in those benefits, including payments that may in substance be constructive dividends. A derivative claim requires sufficient proof of unreasonable board conduct harming the corporation and is barred by the business judgment rule absent such proof.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

North Shore Fabrication, a closely held corporation in Duluth, has four shareholders. After years of friction, the board offers minority shareholder Lena Ortiz $60,000 for her shares; she rejects the offer as unfair and sues, asking the court to require the corporation to buy her shares for $110,000 even though no shareholder has sold stock back to the company and no statutory wrongdoing findings have been made.

How should the court rule on Lena's request for a compelled purchase?

Explanation. The majority rejected the theory that a corporation becomes obligated to buy a minority shareholder's stock at fair value merely because it made an offer the shareholder did not accept. A court may not specifically enforce an unaccepted offer on different terms. A compelled buyout may be possible only through some other recognized route, such as an equitable alternative to liquidation upon proper statutory findings. (Derived from Alaska Plastics, Inc. (n.d.).)