Sunday, November 24, 2013

Brodie v. Jordan case brief

Brodie v. Jordan case brief summary
857 N.E.2d 1076 (Mass. 2006)


CASE SYNOPSIS
Plaintiff, a shareholder in a close corporation, sued defendants, the corporation's two other shareholders, claiming that defendants had "frozen" her out. The Superior Court found that defendants had breached their fiduciary duty, and ordered that they purchase the shareholder's shares. The Appeals Court (Massachusetts) affirmed, and the court granted defendants' application for further appellate review limited to the propriety of the remedy.

DISCUSSION

  • The court concluded that it was error to order a buyout. 
  • The problem with the remedy was that it placed the shareholder in a significantly better position than she would have enjoyed absent the wrongdoing, and well exceeded her reasonable expectations of benefit from her shares. 
  • One of the defining aspects of a close corporation was the absence of a ready market for corporate stock. 
  • There was nothing in the background law, the governing rules of the corporation, or any other circumstance that could have given the shareholder a reasonable expectation of having her shares bought out. 
  • In ordering defendants to purchase the shareholder's stock at the price of her pro rata share of the company, the judge created an artificial market for the shareholder's minority share of the close corporation (an asset that, by definition, had little or no market value). 
  • Thus, the remedy had the perverse effect of placing the shareholder in a position superior to that which she would have enjoyed had there been no wrongdoing.

CONCLUSION
Because the court concluded that it was error to order a buyout, that part of the judgment was reversed; in all other respects the judgment was affirmed. The case was remanded to the superior court for proceedings consistent with the opinion.

Recommended Supplements for Corporations and Business Associations Law

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