Terry J. Cooke (plaintiff) is the former husband of defendant, Joni Quicker (Joni); defendant Allen John Quicker


Terry J. Cooke (plaintiff) is the former husband of defendant, Joni Quicker (Joni); defendant Allen John Quicker (John) is Joni’s father. In the early 1980s John and Joni began a business distributing fresh produce. Plaintiff soon left his job and began working with John and Joni full time. The business was originally a partnership, with John having a half interest and Joni and plaintiff together having the other half interest. The business grew throughout the 1980s. In June 1990 John, Joni, and plaintiff incorporated the business as Fresh Express Foods Corporation, Inc. (Fresh Express). John received 50 percent of the stock, and Joni and plaintiff each received 25 percent. John was the president of the corporation, Joni was the vice-president, and plaintiff was the secretary and treasurer. They also constituted the three members of the board of directors.

   Fresh Express was the primary source of income for all three parties. Part of that income came from their salaries, but substantial additional amounts came as loans that the corporation made to them for various purposes, including paying their individual taxes on their portions of the corporation’s retained earnings. Because Fresh Express elected to be a subchapter S corporation, which for tax purposes does not pay taxes itself but passes its income through to its shareholders, plaintiff and defendants were liable for taxes on those retained earnings whether or not the corporation actually distributed them. Without the loans, they would have had no corporate money to pay the taxes on that corporate income.

   Joni and plaintiff separated at about the time of the incorporation. The tension between them increased significantly beginning in June 1993 when, after starting a relationship with a Fresh Express employee, plaintiff filed for dissolution of the marriage.

   Plaintiff managed the company’s delivery system, which included supervising the operation of its trucks. In December 1993, while plaintiff was on vacation, John discovered a notice on plaintiff’s desk from the Public Utilities Commission (PUC) that showed deficiencies resulting in a fine of $6,000 and additional penalties of $4,000. Plaintiff had not paid those amounts, and that failure threatened Fresh Express with the loss of its PUC authority to operate. When plaintiff returned from vacation, John, acting as president of the company, gave plaintiff a written notice of termination that included the statement that ‘‘Fresh Express Foods Corporation has suffered monetary loss associated with [plaintiff’s] position and this constitutes a Breach of Fiduciary Responsibility to the Corporation.’’ It did not refer to a threatened loss of PUC operating authority. After the termination, plaintiff received his unpaid wages and two weeks’ severance pay. Before the termination, the corporation distributed money to all of its shareholders that it treated as shareholder loans. It continued to make those distributions to John and Joni, but it did not make them to plaintiff after his termination. Although plaintiff remained a corporate officer and director for almost two years, he was never again informed of or consulted about corporate business.

   The court entered a judgment dissolving plaintiff’s and Joni’s marriage in August 1994, awarding Joni approximately $27,000. Because the corporation had never issued any stock certificates, Joni was unable to use plaintiff’s ownership interest in the corporation to satisfy the court judgment. In order to provide Joni a stock certificate to garnish, John called a directors’ meeting for November 2, 1995, for the purpose of electing officers. At the meeting John and Joni first reelected John as president and Joni as vice-president; then they also elected Joni as secretary and treasurer. Plaintiff abstained from all three votes. A few days later Joni issued a stock certificate to plaintiff. Instead of sending the certificate to plaintiff, she immediately delivered it to the sheriff under a writ of garnishment on her judgment against plaintiff.

   In September 1996, defendants called a special shareholders’ meeting, at which they reduced the number of directors to two, over plaintiff’s dissenting vote, and elected John and Joni to those positions. During an informal discussion, plaintiff asked John’s attorney if the company intended to pay the considerable amount of money it owed to him. After consulting with John, the attorney responded that John had decided not to make any more distributions to shareholders at that time. After the shareholders’ meeting ended and plaintiff left the room at their request, John and Joni held a directors’ meeting at which they first removed plaintiff ‘‘from all of his positions as an officer, employee and agent of the corporation.’’ John and Joni then agreed, despite the attorney’s statement to plaintiff, to distribute the corporation’s entire accumulated adjustment account to the shareholders by using it to reduce the outstanding shareholder loans. Finally, they agreed to purchase automobiles for John and Joni, and to increase John’s salary from $54,000 per year to $120,000.

   [The plaintiff brought suit against the corporation, John, and Joni. The trial court found that John would not have terminated Joni for a comparable error. It concluded that the purpose for firing plaintiff was to exclude him from participating in the corporate business or receiving any benefits from the corporation. The court found that the reason for the exclusion was the breakdown of the marriage and the animosities that followed. The trial court found that the defendants had acted oppressively toward plaintiff in the management and control of defendant Fresh Express. As a remedy, the court ordered defendants to purchase plaintiff’s interest in Fresh Express at a price set by the court. The defendants appealed.]

   Plaintiff argues that these actions together constituted a course of oppressive conduct and that defendants breached their fiduciary duties to him by freezing him out of all participation in the corporation and depriving him of all of the benefits of being a stockholder. ORS 60.661(2)(b) provides that a court may dissolve a corporation when the directors or those in control ‘‘have acted, are acting or will act in a manner that is illegal, oppressive, or fraudulent[.]’’ Although there is not, and probably cannot be, a definitive definition of oppressive conduct under the statute, at least in a closely held corporation conduct that violates the majority’s fiduciary duties to the minority is likely to be oppressive. [Citations.] Cases that discuss either oppressive conduct or the majority’s fiduciary duties are, thus, relevant to this question.

   A number of cases make it clear that when

the majority shareholders of a closely held corporation use their control over the corporation to their own advantage and exclude the minority from the benefits of participating in the corporation, [in the absence of ] a legitimate business purpose, the actions constitute a breach of their fiduciary duties of loyalty, good faith and fair dealing.

   [Citation.] A finding that the majority shareholders have engaged in oppressive conduct under ORS 60.661 permits the court either to order a dissolution of the corporation or to award lesser appropriate relief, including requiring the majority to buy out the minority’s interest at a price that the court fixes. [Citation.] Because many things can constitute oppressive conduct or a breach of fiduciary duties, what matters is not so much matching the specific facts of one case to those of another but examining the pattern and intent of the majority and the effect on the minority of those specific facts. [Citation.]

   The facts of this case show a classic squeeze-out. * * * Defendants withheld dividends and other benefits from plaintiff while preserving benefits for themselves.

* * * [W]itholding dividends can be especially devastating in an S corporation as all corporate income is passed through to the shareholders for tax purposes and shareholders are required to pay taxes on that income, but if no dividends are declared, the shareholders will have no cash from the enterprise with which to pay those taxes.

   [Citation.] * * * In addition, the ‘‘abrupt removal of a minority shareholder from positions of employment and management can be a devastatingly effective squeeze-out technique.’’ [Citation.] Finally, majority shareholders may siphon off corporate wealth by causing a corporation to pay the majority shareholders excessively high compensation, not only in salaries but in generous expense accounts and other fringe benefits. * * *

   The existence of one or more of these characteristic signs of oppression does not necessarily mean that the majority has acted oppressively within the meaning of ORS 60.661(2)(b). Courts give significant deference to the majority’s judgment in the business decisions that it makes, at least if the decisions appear to be genuine business decisions. * * * The court must evaluate the majority’s actions, keeping in mind that, even if some actions may be individually justifiable, the actions in total may show a pattern of oppression that requires the court to provide a remedy to the minority.

   The background of this case is a corporation that consisted of a father, a daughter, and a son-in-law and that came into existence at the very time that the marriage between the daughter and son-in-law began to dissolve. The events that we have described can best be understood as steps in a pattern whose ultimate goal was to eliminate plaintiff from all participation in what John and Joni saw as a family business. As plaintiff suggests in his brief, after firing him as an employee they tried also to fire him as a shareholder. That, however, is not as easy to achieve.

   Although there were some previous signs of tension, the first action that might fit into a pattern of oppression was John’s termination of plaintiff’s employment with the company. Plaintiff does not challenge the dismissal as a matter of employment law. However, it is unusual for a close corporation to terminate the employment of a 25-percent shareholder and corporate director for a mistake of the sort that John described, particularly in the absence of evidence of previous problems and accompanying warnings. The written notice of termination appears to be more an attempt to create a paper justification for the termination than a statement of the actual reasons. After the termination, defendants excluded plaintiff from all involvement in the corporation and its business and all participation in its profits, things that relate to his continuing status as a shareholder and a director, not to his terminated status as an employee. Those actions suggest that the purpose of the termination was not to remove an unsatisfactory employee but, rather, to exclude plaintiff from participation in the corporation.

   Defendants nominally recognized plaintiff’s continuing status after his termination only when they had to follow corporate forms in order to benefit themselves at his expense. The sole purpose for the directors’ meeting in November 1995 was to produce a stock certificate that Joni could garnish * * *.

   Finally, in September 1996 defendants acted to ensure that they would permanently receive all benefits of the corporation. They began by replacing plaintiff as a director and reducing the number of directors to two. Although that was not necessarily improper in itself, their first actions as the sole directors of Fresh Express showed their purpose to exclude plaintiff from any share in the corporation other than his tax liabilities. They first removed defendant from any office or agency with the corporation and then took a number of actions to direct all corporate income to themselves. Despite having told plaintiff that there would be no corporate distributions, defendants distributed the entire retained earnings through a paper transaction that ensured that the corporate books would show no source for making any cash distribution to plaintiff. They then more than doubled John’s salary, with the result that he received his income from the corporation as an expense that would reduce its profits rather than as a distribution of profits. Finally, they had the corporation pay for their recently purchased automobiles, again adding to the corporation’s expenses and reducing its profits for their benefit.


   In summary, we conclude that defendants consistently acted to further their individual interests, not the interests of the corporation, and without regard to their fiduciary duties to plaintiff. They did so either knowing or intending that their actions would harm plaintiff, among other ways by excluding him from any benefits of his ownership of one quarter of the corporate stock. They thereby violated their fiduciary duties to him and engaged in oppressive conduct.

   Under ORS 60.661, the trial court had the authority to choose a remedy for defendants’ actions; we agree with it that requiring defendants to purchase plaintiff’s shares is the preferable option. A purchase will disentangle the parties’ affairs while keeping the corporation a going concern; dissolution would not benefit anyone, and plaintiff did not seek it at trial. Defendants, however, raise some issues concerning the court’s determination of the price that defendants must pay.

   Plaintiff presented extensive testimony from an expert appraiser concerning the value of plaintiff’s shares in the context of a judicial remedy for oppressive conduct. In doing so, the appraiser determined the value of the company as a profitable going business, made certain adjustments for excessive expenses, and determined plaintiff’s one-quarter share of the total. The expert then added plaintiff’s unpaid wages since his termination as a way of reflecting the benefits that he did not receive after that date. The only directly contradictory evidence that defendants presented came from the company’s accountant, who calculated plaintiff’s proportionate share of its liquidation value. In this case, however, the issue is the fair value of plaintiff’s shares in a profitable going concern, which is not necessarily tied to the company’s liquidation value; that evidence, thus, has limited relevance. The court ordered defendants to purchase plaintiff’s shares at the price that the expert recommended.

   * * * [B]ecause defendants must purchase plaintiff’s shares as a remedy for their misconduct, and the price for plaintiff’s shares is therefore based on their fair value rather than their fair market value, either a minority or marketability discount would be inappropriate. [Citation.]


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Smith and Roberson Business Law

ISBN: 978-0538473637

15th Edition

Authors: Richard A. Mann, Barry S. Roberts

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