Friday, October 12, 2012

Alaska Plastics, Inc. v. Coppock case brief

621 P.2d 270 (1980)

Synopsis: Plaintiff, a minority shareholder in a close corporation, filed suit against the corporation and the three other shareholders seeking, among other things, an involuntary liquidation of the corporate assets. The jury found that the corporation's offer to buy back the minority shareholder's shares was not equitable, and the Superior Court of Alaska ordered the corporation to buy the shares at an established price. All parties appealed.

FACTS: A company was formed with each of three incorporators holding 300 shares of stock in Alaska Plastics (D). One of the shareholders was forced to split his stock in 1970 as part of a divorce settlement.
-Thus Patricia Muir had l/6th of the company or 150 shares.
-Muir was not notified of annual shareholder meetings. D was never authorized to pay dividends but there were director's fees paid. One of the directors was voted an annual salary of $30,000 per year. At the 1974 board meeting it was decided to offer Muir $15,000 for her shares.
-Muir then made a demand to inspect the books and it was learned that the shares were worth between $23-40K. Later in 1974, a special directors meeting was held and it was decided to buy another company for $50,000 that made the same insulation that D did. Muir was never informed of this decision. However, at the shareholder meeting in 1975, she did not dissent from a shareholder vote ratifying all the acts of the directors and officers of the previous year. In 1975, Muir offered her stock to D at the price of $40,000.
-D countered with an offer of $20,000. Shortly after, their first facility burned to the ground with a total loss. There was no insurance.
-Production was carried on at the wholly owned subsidiary that had just been purchased. The fire in effect turned D into a holding company for its affiliate. Eventually a law suit was filed and the trial judge entered judgment that D was to buy P's shares for a total judgment of $52,314. All parties appealed.

ISSUE: In the absence of a prior agreement for repurchase or a change in corporate structure, does a minority shareholder in a close corporation have the right to demand the company purchase its shares at fair value?

RULE: A shareholder may require a corporation to repurchase its own shares upon the company's breach of fiduciary duty, but the remedy should be less than liquidation, if possible, and a fair price may be less than the appraised value.

-The minority shareholder received an interest in the corporation when she divorced one of the other shareholders, but was not notified of several shareholder meetings. However, she attended a meeting during which she ratified the actions of the directors in acquiring another company.
-The minority shareholder and the corporation entered into negotiations to have the corporation buy back her shares.
-The minority shareholder filed suit after they were unable to agree upon a price for the shares. The court noted that involuntary liquidation of a corporation was a severe remedy not favored by the courts.

The court held that the minority shareholder's request for liquidation could justify the trial court's judgment as an equitable remedy less drastic than liquidation if supported by certain findings. However, the court held that the trial court failed to make the necessary finding as to whether the acts of the other shareholders were illegal, oppressive, or fraudulent. The court held that the forced buy back could not be justified as a result of a "de facto merger" because the minority shareholder approved of the transaction and her interest in the corporation remained unchanged.

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