Alaska Plastics, Inc. v. Coppock

Supreme Court of Alaska · 1980 · Corporations

CorporationsClose corporationsMinority shareholder remediesFiduciary dutiesclose corporationminority shareholderfiduciary dutyoppression

Facts

Alaska Plastics was a close corporation controlled by Stefano, Gillam, and Crow, while Muir held a one-sixth minority interest. Muir was not properly notified of several shareholder meetings, received no money from the corporation, and was excluded while the controlling shareholders paid themselves director's fees, paid Gillam a substantial salary, and apparently charged some personal expenses to the corporation. The corporation offered to buy Muir's shares for $15,000 and later $20,000, but she rejected both offers as too low. The trial court then ordered the corporation to buy her shares at a judicially determined fair value.

Issue

Can a court require a close corporation to purchase a minority shareholder's stock at a fair value merely because the corporation made an inequitable offer and the minority shareholder alleges breach of fiduciary duty? More broadly, what remedies are available on this record for a minority shareholder allegedly denied benefits given to the controlling shareholders?

Rule

A court may not order specific performance of an unaccepted corporate offer by requiring a close corporation to buy a minority shareholder's stock at a judicially determined fair price different from the offer. In a close corporation, controlling or fellow shareholders owe minority shareholders a fiduciary duty akin to partners' duty of utmost good faith and loyalty, and if controlling shareholders obtain special corporate benefits not shared by all shareholders, courts may require equal sharing of those benefits; a compelled stock purchase may be available only as an equitable alternative to liquidation upon proof of the statutory grounds for liquidation under AS 10.05.540, such as illegal, oppressive, or fraudulent conduct or waste or misapplication of assets.

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

North Sound Fixtures, Inc., a closely held corporation in Anchorage, has four shareholders. The three controlling shareholders offered minority owner Elena Park $90,000 for her shares, and she rejected the offer as too low. She then sued, asking the court to require the corporation to buy her shares for $150,000 because the offer was unfair and the controllers owed her fiduciary duties.

What is the best answer?

Explanation. The majority held that even though shareholders in a close corporation owe one another fiduciary duties of utmost good faith and loyalty, that principle does not let a court convert a rejected offer into a compulsory purchase at a different judicially determined price. Doing so would improperly make and enforce a contract between unwilling parties. (Derived from Alaska Plastics, Inc. v. Coppock (1980).)