Landstrom v. Shaver

Jo Landstrom (plaintiff) was a minority shareholder of a close corporation, Black Hills Jewelry Manufacturing Company (BHJMC). The other shareholders in BHJMC were Milt Shaver, Jack Devereaux, and Constance Drew (the other shareholders) (defendants). Landstrom sued the other shareholders for shareholder oppression, breach of fiduciary duty, tortious interference with prospective economic advantage, negligent misrepresentation, and negligence. The lawsuit predominantly related to Shaver’s purported failure to disclose a veto provision in a buy-sell agreement and the other shareholders’ failure to either sell all the shareholders’ stock or permit Landstrom to sell her stock. Pursuant to a minority rule for determining when a shareholder in a close corporation can maintain a direct action, the trial court allowed Landstrom to sue the other shareholders directly rather than requiring a derivative action. In doing so, the trial court found that requiring a derivate action might have resulted in a distribution to BHJMC and, consequently, resulted in the other shareholders receiving an inequitable benefit from the lawsuit. The trial court further found that allowing Landstrom to sue the other shareholders directly reduced the potential for multiple litigation against BHJMC and was unlikely to materially prejudice any creditors’ interests or inhibit BHJMC’s ability to continue doing business. Landstrom’s direct action proceeded to trial, and the jury returned a verdict in her favor that awarded substantial damages. On appeal, the other shareholders argued that the trial court erred in applying the minority rule and argued that the minority rule posed great potential for abuse by disgruntled minority shareholders.