430 N.W.2d 447
SYNOPSIS: The Plaintiff shareholders (minority shareholders) brought an action against the defendant majority shareholder for breach of his fiduciary duty to the corporation and for fraudulently misappropriating and converting corporate funds.
An Iowa district court rendered a judgment in favor of the majority shareholder.
The minority shareholders appealed.
-The minority shareholders brought an action against the majority shareholder for breach of fiduciary duty to the corporation and for fraudulently misappropriating and converting corporate funds through executing self-dealing contracts.
-The minority shareholders claimed that sums paid to the majority shareholder and his companies grossly exceeded their value to the corporation.
-The minority shareholders claimed that the majority shareholder breached his fiduciary duty because he failed to disclose fully the benefit that he would gain from arrangements to distribute the corporation's products.
-The trial court entered a judgment in favor of the majority shareholder.
(1) the majority shareholder's services to the corporation were neither unfairly priced nor inconsistent with the corporation's interest,
(2) the majority shareholder did not owe the minority shareholders a duty to disclose any information before the board of directors executed distributorship, royalty, warehousing, or consulting fee arrangements,
(3) statutes placed the duty of managing the affairs of the corporation on the board of directors, not the shareholders.
-The four agreements between Cookies and Herrig’s corporations each benefitted Cookies (i.e., the exclusive distributorship, taco royalty sauce, warehousing, and consulting fees.)
-In duty of care challenges the burden of proof is on the plaintiffs because of the business judgment rule, which affords directors the presumption that their decisions are informed, made in good faith, and honestly believed by them to be in the best interest of the company.
OUTCOME: The court affirmed the judgment of the trial court, which ruled in favor of the majority shareholder.
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