Pertuis v. Front Roe Restaurants, Inc.

Mark and Larkin Hammond formed three separate S-corporations to establish three different restaurants. Kyle Pertuis (plaintiff) was hired to manage the restaurants and received ownership interests as part of his compensation. Pertuis’s employment contract for two of the corporations provided that he would acquire a 10 percent ownership interest in each corporation after five years. Pertuis’s contract for the third corporation, Front Roe Restaurants, Inc. (defendant), provided that Pertuis would acquire a 1 percent ownership interest when the restaurant became profitable and another 9 percent interest when the restaurant achieved $500,000 in profits. By 2007, Pertuis had acquired a 10 percent ownership in the first two corporations but received only a 1 percent ownership interest in Front Roe because of profitability issues. Pertuis sought to change the arrangement so that he could acquire a 10 percent ownership interest in Front Roe but was unsuccessful. Pertuis then terminated his business relationship with the Hammonds and filed suit against them. Pertuis argued that he was entitled to a 10 percent ownership interest and a forced buyout because he was an oppressed minority shareholder and the Hammonds had acted in bad faith. The trial court found that a de facto partnership had been created and that therefore the corporations should be viewed as one single entity. The trial court based this finding on the fact that the Hammonds were shareholders of all three corporations, had intermingled the corporations’ funds, and had not complied with corporate formalities. Pertuis was awarded a 7.2 percent ownership interest in Front Roe and a forced buyout. The Hammonds appealed claiming, among other arguments, that the trial court erred in requiring an amalgamation. The court of appeals affirmed on the grounds that the issue of amalgamation had not been preserved and that a de facto partnership was warranted. The matter was appealed. The South Carolina Supreme Court granted certiorari.