Question: Water Works Inc was a closely held corporation operating an
Water Works, Inc., was a closely held corporation operating an automatic car wash in Wisconsin Rapids. Its 204 shares were issued to Duane and Sharon Jorgensen; their daughter, Doreen Barber, and her husband, James; and two family friends, Gary and Mary Tesch. Each received 34 shares, and each was a director. Duane was president; Sharon, Gary, and James were vice presidents; Mary was treasurer; and Doreen was secretary. The corporation's written business plan stated that Duane would be in charge of management and that the six shareholders would be permanent directors. An oral agreement of shareholders stated that Duane would oversee management as long as he lived. Each shareholder received weekly payments from the corporation, the amount of which was determined by the shareholders agreement. In 1995, Duane discovered that some of the officers and directors were engaged in illegal activity on property owned by the corporation and using the corporation's property for their own personal benefit. When Duane demanded the activities stop, the Barbers and Tesches removed the Jorgensens from the board of directors and stopped making payments to them. The Jorgensen's sued the Barbers and Tesches for breach of fiduciary duty. The Barbers and Tesches claimed they owed fiduciary duties only to the corporation and, therefore, the Jorgensens, as shareholders, could not sue in their own names. Were they right?
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