Articles Tagged with fiduciary duty

  • In valuing the shares of a minority shareholder, a trial court must consider any valuation technique that is generally acceptable in the financial communities.  Determining fair value is an art, not a science.

  • Directors that hold a majority interest in a closely held business have a duty to deal fairly with the minority and in a merger to make full and fair disclosures and offer a fair price in exchange for shares.

  • A minority shareholder that sits by or acquiesces to wrongful conduct by the majority waives the right to later pursue a claim based on that behavior.

  • Fee awards are available only to shareholders with a statutory right to dissent and in the discretion of the judge.


Casey v. Brennan, 344 N.J. Super. 83 (App. Div. 2001)

Minority Shareholder Valuation Attorney

Statues: NJSA 14A:11-1, NJSA 14A11-3; NJSA 14A:6-14: NJSA 14A:11-6; NJSA 14A:11-10

Action challenging the valuation provided by controlling directors (also majority shareholders) in corporate reorganization as plan to reduce number of shareholders to 75 or less to qualify for subchapter S status. Directors approved plan of merger at $73 a share in reorganization plan requiring small shareholders to sell. Trial Judge set value at $90 a share. (Opinion here.)  The Supreme Court affirmed the Appellate Division.  (Opinion here.)

Facts: Community Bank adopted a plan of merger as part of a plan of reorganization that would reduce the number of shareholders by acquring holdings of persons with less than 15,000 sharesat a price of $73 per share. Statutory dissenters and non-statutory dissenters brought various actions consolidated for trial. Trial court holding that proxy statement was misleading and provided non-statutory dissenters with right to sue, and determined fair value $90 per share. Affirmed in part and remanded for reconsideration of valuation issues that were rejected by trial court. Continue reading

  • Good faith and fair dealing are obligations implied in every contract, including contracts among owners of closely held businesses, and cannot be waived by the language in an operating agreement voiding fiduciary duties.

  • The duties of good faith and fair dealing require disclosure of conflicts of interest involving controlling LLC members or partners.

  • Contracts contain obligations that are so ‘obvious’ that they are not included in the written agreement; these obligations fall withing the scope of good faith and fair dealing.

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Partnership Failed to Keep Inactive Partner Informed

The fiduciary duties owed among partners can change with time and circumstances, and the disclosures that were appropriate when all of the partners worked together in the business may become inadequate when one of the partners has ceased to take an active role.

This is the lesson of Munoz v. Perla, Docket No. A-5922-08T3 (App. Div. Dec. 20, 2011) in which the Appellate Division affirmed a trial court decision holding that the members of a partnership had failed to make adequate disclosure of the terms of the leases held by the engineering firm, of which the parties had all once been partners.

Although the case involved the now-repealed Uniform Partnership Act, and thus not all of the holdings may be applicable to partnerships formed under later law, the decision is instructive as to how the fiduciary relationships between partners my evolve as time passes and circumstances change. (For another reason decision involving fiduciary duties among partners, see our blog post here.)

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Promoters of LLC Subject to Breach of Fiduciary Duty Claims

Limited liability companies are clearly the vehicle of choice for new, closely held businesses.  That means that more often than not the principals have some existing relationship before they take up their new business together.  Can that prior relationship create fiduciary duties even before the company has begun operations?

A decision out of the New York Court of Appeals indicates that there may be fiduciary duties in such a relationship, in particular duties of full disclosure and fair dealing.  Moreover it appears that these duties may exist before the limited liability company is formed or membership interests are acquired.  In Roni LLC v. Arfa, 2011 N.Y. Slip Op. 09163 (Dec. 20, 2011),  The court held that the existence, or not, of a fiduciary relationship depends up the relationship of the parties and whether it meets the traditional criteria necessary to create fiduciary obligations.

Real Estate Investments by LLC

This case involved the conduct of promoters, the individuals who organize a new business and seek out other participants or investors.  The defendant promoters organized seven limited liability companies under New York law for the purpose of buying and renovating buildings in the Bronx and Harlem for resale.  The plaintiffs were a number of Israeli investors who acquired interests in the LLCs.

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