Baker v. Commercial Body Builders, Inc.

Oregon Supreme Court · Corporations

Corporationsclose corporationsoppressionjudicial dissolutionequitable remediesORS 57.595ORS 57.600close corporation

Facts

Commercial Body Builders was a close corporation originally formed by Charles Siler and his wife; later Baker and his wife acquired 49% of the stock. After relations between Siler and Baker deteriorated, Baker was terminated as a salesman, Baker and his wife were removed as directors and officers, and they were not thereafter consulted about the business. Plaintiffs also challenged salary increases paid to Siler and his wife and Commercial's advances, space, and services provided to another corporation, Hydro, in which Siler held an interest. The evidence also showed, however, that Siler ran the business full time, Baker contributed little beyond his investment, no bonuses were paid after 1970, there was no proof the salaries were excessive, and there was no proof of actual corporate loss from the Hydro dealings as of trial.

Issue

Whether the conduct of the controlling shareholders and directors in excluding the minority from participation, increasing their own compensation, and causing the corporation to deal with another corporation in which one controller held an interest constituted oppressive conduct under ORS 57.595 requiring dissolution or some other equitable remedy. Also, whether the court should grant alternative equitable relief even if dissolution was inappropriate.

Rule

Under ORS 57.595, conduct need not be illegal or fraudulent to be oppressive. In a close corporation, oppressive conduct is closely related to breach of the majority's fiduciary duty of good faith and fair dealing to minority shareholders; abuse of corporate position for private gain, including siphoning profits through excessive salaries or bonuses and operating the business solely for the majority's benefit to the minority's detriment, can be oppressive. But even when oppressive conduct is shown, dissolution is not automatic: courts of equity retain discretion, liquidation is a harsh remedy, and relief depends on the seriousness and continuity of the conduct, whether it caused disproportionate loss or shows the majority can no longer be trusted to manage fairly, and whether future harm appears likely.

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

Maple Foundry, Inc., a close corporation in Portland, has two shareholders: Nora Kim owns 48%, while Daniel Voss owns 52% and manages the company. After a dispute, Daniel stops giving Nora notice of shareholder meetings, excludes her from corporate information, and uses his control to run the company entirely for his own convenience, but Nora cannot prove any statutory violation or common-law fraud.

Under the majority rule, which statement is most accurate regarding Nora's claim for judicial relief based on oppressive conduct?

Explanation. The majority opinion states that conduct need not be illegal or fraudulent to be oppressive. In a close corporation, oppression is closely related to breach of the majority's fiduciary duty of good faith and fair dealing toward minority shareholders. But showing oppression does not automatically entitle the minority to dissolution.