Lawton v. Nyman

A closely held, family-owned corporation, Nyman Manufacturing Company (NMC), was financially struggling. NMC had Class A non-voting stock and Class B voting stock. Two brothers, Robert and Kenneth Nyman (the Nymans) (defendants), were the managing officers and directors of NMC, owned all of NMC’s voting stock, and were controlling shareholders. Non-voting stock was owned by other family, including the Nymans’ sister, Judith Lawton (plaintiff). In an effort to restore NMC’s financial condition, the Nymans hired Keith Johnson (defendant) in 1994 as chief financial officer and treasurer. NMC thrived with Johnson’s influence. By 1996, NMC’s shareholder equity had quadrupled in value. On May 8, 1996, Johnson sent a letter to shareholders (other than the Nymans), on behalf of NMC, with NMC’s offer to redeem (or buy) all Class A non-voting stock for $200 per share. The price was not based on an appraisal and was neither current market value nor book value. The letter did not disclose how the price had been determined and also contained misrepresentations, including an implication that NMC’s lenders required a May 22, 1996 deadline on the offer. Further, though NMC management provided lenders with unaudited financial information showing increased profits in 1996, Lawton and the other minority shareholders were not provided with the same. Moreover, unbeknownst to the minority, NMC management hired a consultant to assist in a sale of NMC and engaged in discussions with potential buyers. On May 10, 1996, all minority shareholders decided to sell their NMC shares back to NMC. Consequently, the Nymans and Johnson owned all of NMC’s outstanding equity. In September 1997, Nymans and Johnson sold their NMC shares to Van Leer Corporation (VLC). VLC paid approximately $1,667 per share for the Class A shares and approximately $2,167 per share for the Class B shares. The minority shareholders sued the Nymans and Johnson for breach of fiduciary duty to the minority shareholders. The district court ruled the Nymans and Johnson had breached their fiduciary duty to the minority shareholders. Nymans and Johnson appealed.