[Shareholder Oppression Blog] Shareholder Oppression Cause of Action in Florida

[Eric Fryar]

[http://www.shareholderoppression.com/Shareholder/Florida/Florida-Shareholder-Oppression-Buy-Out.html]
Shareholder Cause of Action in Florida

I recently had occasion research the availability of the shareholder cause of action and the buy-out remedy in Florida. There are no reported cases recognizing the shareholder cause of action in Florida and one federal case which deals with the pleading of that cause of action under federal law calls the claim a "misnomer." Nevertheless, all of the components and public policies that underlie the cause of action and remedy in other jurisdictions are firmly established in Florida law. Read the entire research memo on shareholder oppression in Florida law at the Shareholder Oppression website. Here is a summary of what we found:

Florida courts have held that controlling shareholders owe fiduciary duties directly to minority shareholders. E.g., Orlinsk v. Patraka, 971 So. 2d 796, 801 (Fla. App. 3rd Dist. 2007). In Tillis v. United Parts, Inc., 395 So2d 618 (Fla. App. 5th Dist. 1981), the minority shareholders sued the majority shareholders for having caused the corporation to buy back stock from the majority owners at an inflated price, where the same offer was not made to minority shareholders. The court held that the transaction was essentially a preferential dividend to the majority shareholders and violated fiduciary duties to the minority shareholders. Id. at 620‐21. The court of appeals reversed the dismissal of the plaintiffs’ claims, holding that the plaintiffs had stated claims for both breach of fiduciary duties to the corporation and for breach of fiduciary duties “as majority stockholders to not utilize their control of the corporation to their advantage as against the minority stockholders.” Id.

In Acoustic Innovations, Inc. v. Schafer, 976 So.2d 1139 (Fla. App. 4th Dist. 2008), the court of appeals affirmed the imposition of a buy‐out remedy. In that case, there was an agreement between the two founders of a corporation that they would each receive 50% of the shares. One of the founders handled the incorporation and issued himself all of the shares. Thereafter, he refused to issue shares to the other founder and ultimately fired him. The ousted founder sued for a declaratory judgment that he was a shareholder and for involuntary dissolution and for breach of fiduciary duties. The trial court found that the plaintiff was a 50% shareholder. The trial court awarded the plaintiff 50% of the distributions that the other shareholder had taken out of the corporation since inception and awarded him almost $2 million for the value of his shares. Although the relief requested was dissolution, the court did not order the corporation dissolved; rather the court ordered the defendant to purchase the plaintiff’s shares for the value found by the court and imposed a constructive trust on all the shares of the corporation until the purchase was accomplished. The court of appeals affirmed in all respects. Although this case was not called an oppression case, that is clearly what it was.

Two recent cases involving the appraisal remedy also recognize that, in the corporate context, the court has the equitable power to fashion remedies that go beyond the statute. See Foreclosure Freesearch, Inc. v. Sullivan, 12 So.3d 771 (Fla. App. 4th Dist. 2009); Williams v. Stanford, 977 So.2d 722 (Fla. App. 1st Dist. 2008).

Eric Fryar, Fryar Law Firm, P.C.

--
Posted By Eric Fryar to Shareholder Oppression Blog at 2/23/2011 11:28:00 AM