Balvik v. Sylvester

Supreme Court of North Dakota · 1987 · Corporations

411 N.W.2d 383 (1987)

Updated August 22, 2026

Corporationsclose corporationsshareholder oppressionjudicial dissolutionequitable remediesoppressionclose corporationfreeze-out

Facts

Balvik and Sylvester first operated an electrical contracting business as partners, then incorporated it in 1984, with Sylvester owning 70 percent of the stock and Balvik 30 percent. Balvik had expected active involvement in the business, but conflicts arose over management and treatment of profits, and the trial court found that Sylvester fired Balvik from employment in 1985. At a 1986 shareholders meeting, Sylvester used his voting control to reduce the board, remove Balvik and Balvik's wife as directors, and replace Balvik as vice-president. After these actions, Balvik had no role in management or operations and apparently received no money from the corporation.

Issue

Whether Sylvester's conduct toward Balvik constituted "oppressive" conduct under § 10-21-16(1)(b), N.D.C.C., sufficient to justify judicial relief. If so, whether dissolution and liquidation of the corporation was the proper remedy.

Rule

In a close corporation, oppressive conduct under § 10-21-16(1)(b), N.D.C.C., is not limited to illegal or fraudulent acts and may consist of a continuing course of conduct that, viewed in light of the majority's fiduciary duties and the minority shareholder's objectively reasonable expectations central to joining the venture, substantially defeats those expectations. Although the statute mentions dissolution, courts may grant alternative equitable remedies, and dissolution should be used with extreme caution and only when justice requires it.

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

In Fargo, Nora Lind and Ethan Pruitt formed a small architectural supply corporation, with Ethan owning 80% and Nora 20%. Both initially worked full time in the business and served as directors, but after a dispute Ethan terminated Nora's employment, used his voting control to remove her from the board, and continued retaining all earnings in the company without any distributions; there is no market for Nora's shares.

If Nora petitions for judicial relief as a minority shareholder, what is the strongest argument that Ethan's conduct was oppressive?

Explanation. The majority opinion treats oppression in a close corporation as broader than illegality or fraud. Courts may identify oppression by examining fiduciary-duty principles and whether the majority's conduct substantially defeats expectations that were objectively reasonable and central to the minority's decision to join the venture. In a close corporation, expected benefits commonly include employment, participation in management, and some return on investment, especially where there is no ready market for the shares. Ethan's cumulative conduct resembles a freeze-out.