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Corporate – Minority Shareholder – Controlling Shareholders – Breach of Fiduciary Duty

Even though the defendant-shareholders own only 40 percent of the shares of the defendant-corporation, the plaintiff-minority shareholder has alleged that they exercised sufficient control over the corporation to allow him to state a claim for breach of fiduciary duty.

The court grants defendants’ motion to dismiss plaintiff’s unfair trade practices claim. Otherwise, their motions are denied.

Although plaintiff asks for dissolution of the corporation, since he seeks no relief from the owners of another 20 percent of the corporation’s shares, those shareholders are not necessary parties to this action. G.S. § 55-14-31(b).

A minority shareholder exercising actual control over a corporation may be deemed a controlling shareholder with a concomitant fiduciary duty to the other shareholders.

Each individual defendant is a minority shareholder, and their aggregate interest (40 percent) does not amount to a majority. Thus, the question is whether plaintiff has alleged facts from which one can reasonably infer that minority shareholders exercised actual control over the corporation’s actions.

Taken together, the complaint’s allegations show that defendants Powell, Lee, and Leonard acted in concert, jointly made all of the corporation’s key financial and management decisions to the exclusion of plaintiff, named themselves as the corporation’s directors, and then rewrote the company’s by-laws and imposed a new shareholder agreement. At the pleading stage, these allegations are sufficient to give rise to an inference that Powell, Lee, and Leonard were acting as controlling shareholders and, therefore, owed a fiduciary duty to plaintiff as a minority shareholder.

Although being fired is plaintiff’s chief complaint, he also alleges that defendants breached their fiduciary duties to him by marginalizing him within the corporation, limiting his ability to exercise his minority interest in the corporation, and devaluing his shares.

The complaint sufficiently alleges a breach of fiduciary duties owed by controlling shareholders to a minority shareholder.

However, this is a classic shareholder dispute, having nothing to do with the type of unfair market conduct that G.S. § 75-1.1 was designed to address. By now, the message should be clear: § 75-1.1 plays no role in resolving internal corporate disputes.

Motion granted in part, denied in part.

Brewster v. Powell Bail Bonding, Inc. (Lawyers Weekly No. 020-053-18, 17 pp.) (Adam Conrad, J.) G. Kurt Thompson Jr. and Mark Ihnat for plaintiff; W. Cory Reiss for defendants. 2018 NCBC 74


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