[Shareholder Oppression] New Indiana "Freeze Out" Claim Opinion
Eric Fryar
Haag Trucking Co., Inc. v. Haag, --- N.E.2d ----, 2008 WL 5006541 (Ind. App. November 26, 2008).
The Indiana court of appeals has issued an oppression opinion recapping the state of that cause of action in Indiana. The case involved a break-down in a family after the death of the father, that concerned the three family corporations. The son sued is mother in a case tried to the court. The court entered a judgment for damages based on breach of fiduciary duties against one of the corporations and the mother in favor of the son and another of the corporations but found against the son on his claim of freeze out.
Under the Indiana analysis of duties in a closely-held corporation, "[s]hareholders in a close corporation owe a fiduciary duty as well. A close corporation is one which typically has few shareholders and whose shares are not generally traded in the securities market. W & W Equipment Co., Inc. v. Mink, 568 N.E.2d 564, 570 (Ind.Ct.App.1991). The fiduciary duty owed is the same whether it arises from the capacity of a director, officer, or shareholder in a close corporation. G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227, 240 (Ind.2001). "The fiduciary must deal fairly, honestly, and openly with his corporation and fellow stockholders." Id. (quoting Hartung v. Architects Hartung/Odle/Burke, Inc., 157 Ind.App. 546, 301 N.E.2d 240, 243 (1973))."
The court of appeals upheld the trial court's judgment against the son on his freeze out claim basically because the evidence was disputed. The court noted that the plaintiff has the burden of proof on a freeze out claim: "A freeze-out is the use of corporate control vested in the statutory majority of shareholders or the board of directors to eliminate minority shareholders from the corporation or reduce the minority shareholders' voting power or claims on corporate assets to relative insignificance. Mink, 568 N.E.2d at 574 (citing Gabhart v. Gabhart, 267 Ind. 370, 370 N.E.2d 345, 353 (1977)). A freeze-out implies a purpose to force upon the minority shareholder a change which is not incident to any other business goal. Id. Courts faced with freeze-out issues must reconcile conflicting policies: maximizing shareholder benefits and treating shareholders equally. Id. "On the one hand is the necessity to provide adequate protection for the interests and expectations of minority shareholders, and the other is the necessity of allowing sufficient corporate flexibility, as is required by modern commerce." Gabhart, 370 N.E.2d at 353-54."
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Posted By Eric Fryar to Shareholder Oppression at 11/29/2008 06:30:00 PM