Berreman v. West Pub. Co.

• Decision Date: 01 August 2000
• Docket Number: No. CX-00-110.,CX-00-110.
• Citation: 615 N.W.2d 362
• Parties: Thomas BERREMAN, Appellant, v. WEST PUBLISHING COMPANY, et al., Respondents.
• Court: Minnesota Court of Appeals

615 N.W.2d 362

Thomas BERREMAN, Appellant, v. WEST PUBLISHING COMPANY, et al., Respondents.

No. CX-00-110.

Court of Appeals of Minnesota.

August 1, 2000.

Review Denied September 26, 2000.

Michael C. McCarthy, William Z. Pentelovich, Maslon Edelman Borman & Brand, LLP, Minneapolis; and Thomas J. Lyons, Thomas Lyons & Associates, P.A., Maplewood; and Thomas J. Lyons, Jr., Consumer Justice Center, P.A., Maplewood, for appellant.

Patricia A. Bloodgood, Susan E. Ellingstad, Lockridge Grindal Nauen P.L.L.P., Minneapolis, for respondents.

Considered and decided by RANDALL, Presiding Judge, LANSING, Judge, and WILLIS, Judge.

OPINION

LANSING, Judge.

Thomas Berreman appeals from summary judgment dismissing his action against West Publishing Company and three West directors (collectively "West"). Berreman alleged three causes of action: breach of fiduciary duty, unfairly prejudicial conduct in violation of Minn.Stat. § 320A.751, subd. 1(b)(3) (1994), and fraud. Berreman's claims were based on his assertion that West had a duty to disclose to him, before Berreman retired from West and sold his stock back to the company in June 1995, that three of West's directors had begun to consider the sale of West and had engaged an investment-banking firm to explore West's options. On cross-motions for summary judgment, the district court granted summary judgment to West on all of Berreman's claims. Because West did not breach a fiduciary duty, unfairly prejudice Berreman within the meaning of Minn.Stat. § 302A.751, subd. 1(b)(3), or commit fraud, we affirm.

FACTS

The facts are undisputed. In April 1995, Thomas Berreman, a 25-year employee of West Publishing Company, told West's Chief Executive Officer, Dwight Opperman, that he intended to retire effective June 1, 1995. Berreman had worked for West's lawschool division since 1970. West promoted him to assistant manager of the division in 1977 and to division head in 1992.

Beginning in 1974, Berreman bought West stock through a stock-option program for high-level managers and sales representatives that granted options at Dwight Opperman's discretion. In June 1995, Berreman owned 1,600 shares of stock. Berreman bought his stock subject to a written agreement for purchase, sale, and resale, which provided that if he decided to sell his stock or in the event of his death, incompetency, or termination of employment, West could exercise an option to repurchase the stock at book value. The agreement placed no ultimate limitation on Berreman's ability to sell his stock outside the company, but historically West had always exercised its option to redeem its stock. When Berreman told Dwight Opperman of his plans to retire, Opperman looked at Berreman's records and told him that he should "do all right."

Berreman's last day at West was May 31, 1995. On June 1, 1995, with Berreman's authorization, West redeemed Berreman's stock at the current book value of $2,088.90 per share and paid off a bank loan secured by the stock. On June 15, 1995, Chief Financial Officer Grant Nelson gave Berreman a check for approximately $2.8 million.

As of May 31, 1995, West had about 200 employee shareholders, 25 non-employee shareholders, and 328,908 shares outstanding. Dwight Opperman, Nelson, and board president Vance Opperman, in addition to being directors, were each shareholders. Together they held 23 percent of West's outstanding shares. Until its sale to Thomson Corporation in 1996, West was a privately held corporation. And until West announced the possibility of a sale in August 1995, West directors had publicly expressed their commitment to remaining privately held.

During 1994 and 1995, West was facing an increasingly competitive legal publications market. Two of West's competitors, Mead Data, owner of Lexis-Nexis, and Prentice Hall Law & Business, merged into international publishing companies in 1994. That same year West received unsolicited materials on possible mergers from investment-banking firms Goldman-Sachs and A.G. Edwards, which included information about Thomson Corporation. In response to the increasingly competitive conditions, West's board increased its acquisition fund from $70 million to $300 million in October 1994.

During the second week of May 1995, while on vacation, Nelson reflected on the future of West in light of the changing legal-publications market. Nelson was concerned about West's future given increasing competition, changing technology, and pending antitrust investigations. Nelson concluded that rather than making an acquisition, West should consider being acquired or entering into a joint venture.

On May 15, 1995, Nelson met with Dwight Opperman, who listened to Nelson's concerns and told him, "I think you may be right." Nelson and Dwight Opperman met with Vance Opperman the next day, and the three decided to engage A.G. Edwards to explore West's options. Nelson called Ray Kalinowski at A.G. Edwards the same day and told him that West wanted advice on the company's future financial options, including a possible sale of the company. On May 17, 1995, A.G. Edwards representatives met with the West directors. The directors authorized A.G. Edwards to retain another investment-banking firm if necessary.

The West board met on May 23, 1995. During that meeting, the board again addressed its potential acquisitions and authorized A.G. Edwards to explore financing options beyond West's local bank. The board did not discuss the possibility of selling the company. This meeting was the last board meeting before Berreman's June 1 retirement.

On August 28, 1995, A.G. Edwards made a presentation to the West board outlining four options: recapitalization, public offering, status quo, and sale. The board engaged A.G. Edwards and Goldman-Sachs to advise and assist West in evaluating its options and authorized West management to take necessary steps, including contacting potential buyers and developing acquisition proposals.

On August 29, 1995, West announced to its employees and to the public that it had engaged investment bankers and was considering alternative financial options including public offering, entering into a joint venture, joining a strategic partner, recapitalization, sale, or any other available option. In September 1995, West sent invitations for bids to 45 potential purchasers. The bids were due by February 1996, and West eventually received four bids, including one from Thomson Corporation. West accepted Thomson Corporation's bid, and the companies entered into a merger agreement on February 25, 1996. After a shareholder vote and review by the Department of Justice, West concluded the sale to Thomson in June 1996. Thomson paid $10,445 per share to acquire West, about five times the amount Berreman received when he sold his stock back to the company in June 1995. Berreman's action against West followed.

ISSUES

I. Did the district court err by granting summary judgment to West on Berreman's fiduciary-duty claim?

II. Did the district court err by granting summary judgment to West on Berreman's claim of unfairly prejudicial conduct under Minn.Stat. § 302A.751, subd. 1(b)(3) (1994)?

III. Did the district court err by granting summary judgment to West on Berreman's fraud claim?

ANALYSIS

I

This court reviews appeals from summary judgment to determine if there are any genuine issues of material fact and if the district court erred in its application of the law. Reads Landing Campers Ass'n, Inc. v. Township of Pepin, 546 N.W.2d 10, 13 (Minn.1996). When the facts are not disputed, the only questions before this court are questions of law, which we review de novo. Id. Whether a fiduciary duty has been breached generally is a question of fact. Miller Waste Mills, Inc. v. Mackay, 520 N.W.2d 490, 496 (Minn.App.1994), review denied (Minn. Oct. 14, 1994). Materiality is a question of both fact and law. Connelly v. General Med. Corp., 880 F.Supp. 1100, 1113 (E.D.Va.1995). Thus, summary judgment on Berreman's fiduciary-duty claim "is only appropriate where no rational finder of fact could conclude" that West breached a fiduciary duty to Berreman by failing to disclose material facts. Id. (citation omitted).

Common Law Fiduciary Duty

At common law, the shareholders in a close corporation owe one another a fiduciary duty. See Fewell v. Tappan, 223 Minn. 483, 494, 27 N.W.2d 648, 654 (1947); Pedro v. Pedro, 489 N.W.2d 798, 801 (Minn.App.1992) (Pedro II), review denied (Minn. Oct. 20, 1992); Evans v. Blesi, 345 N.W.2d 775, 779 (Minn.App.1984). Courts impose the fiduciary duty because they find that close corporations are really more like "partnership[s] in corporate guise." Westland Capital Corp. v. Lucht Eng'g Inc., 308 N.W.2d 709, 712 (Minn. 1981); see also Fewell, 223 Minn. at 494, 27 N.W.2d at 654 (concluding that two men who co-owned corporation and agreed not to sell stock without other man's consent, "stood in the relationship of copartners"); Pedro II, 489 N.W.2d at 801 ("relationship among shareholders in closely held corporations is analogous to that of partners"); Donahue v. Rodd Electrotype Co., 367 Mass. 578, 328 N.E.2d 505, 512 (1975) ("Commentators and courts have noted that the close corporation is often little more than an `incorporated' or `chartered' partnership.").

Attributes of Close Corporation

Courts generally identify common law close corporations by three characteristics: (1) a small number of shareholders; (2) no ready market for corporate stock; and (3) active shareholder participation in the business. Donahue, 328 N.E.2d at 511; see also Westland, 308 N.W.2d at 712

(describing close corporations).

In addition, dividends are rarely distributed in a close corporation. Westland, 308 N.W.2d at 712. Rather, "shareholders derive their income mainly from salaries and perquisites." Id.

In May 1995, West exhibited characteristics of a close corporation. First, West was not publicly traded; thus, there was no ready public market for its...