Landstrom v. Shaver

INTRODUCTION

[¶ 1.] This case involves both legal and equitable claims asserted by Jo Landstrom [hereinafter Landstrom], a minority shareholder, 1 in Black-Hills Jewelry Manufactur- *3 mg Company [hereinafter BHJMC], Her suit is against the remaining shareholders in BHJMC, Milt Shaver [hereinafter Shaver], 2 Jack Devereaux [hereinafter Devereaux], and Constance Drew [hereinafter Drew], The case was tried on an equitable claim of shareholder oppression and legal claims of breach of fiduciary duty, tortious interference with prospective economic advantage, negligent misrepresentation and negligence. The equitable and legal claims were tried simultaneously with a jury rendering a verdict for Landstrom on the legal claims and an advisory verdict in favor of Landstrom on the equitable claim. Thereafter the trial court entered findings of fact and conclusions of law in favor of Landstrom on the equitable claim consistent with the advisory verdict of the jury.

[¶2.] The jury found Shaver, Devereaux and Drew intentionally interfered with Land-strom’s business relations and expectancies by failure to either sell the stock of all the shareholders or allow Landstrom to sell her stock. Damages were determined to be $10 million apportioned by the jury to be paid 40% by Shaver and 30% each by Devereaux and Drew. The jury found that Shaver breached his fiduciary duty by failing to disclose a veto provision in a 1987 buy-sell agreement. It awarded damages of $4 million. The jury also found that Shaver, Dev-ereaux and Drew breached their fiduciary duty to Landstrom by refusing to properly direct BHJMC. It awarded $4 million in damages, apportioned 40% against Shaver, 30% against Devereaux, and 30% against Drew. The jury further found Shaver negligently misrepresented to Landstrom the 1987 revisions in the buy-sell agreement and awarded damages at $3 million. However this award was later determined by the trial court to be duplicative with the award of breach of fiduciary duty by Shaver and therefore was remitted. The jury found that Shaver, Devereaux and Drew were negligent by “failing to properly direct the company” but determined that no additional damages had been proved. Thus, after the post-trial proceedings, damages were awarded at $18 million on the legal claims.

[¶ 3.] The trial court further entered a judgment that appropriate relief on the equitable claim would be for Devereaux and Drew to purchase Landstrom’s minority interest in BHJMC for $8.4 million. We affirm in part and reverse in part.

FACTS

[¶ 4.] Ivan Landstrom founded BHJMC in 1944. Thereafter, he, along with others, owned and operated BHJMC as a partnership. Defendant Shaver was employed by BHJMC as manager but during that period of time did not have an ownership interest.

[¶ 5.] On March 17, 1968, Ivan Landstrom, along with his wife and six Rapid City High School cheerleaders, were killed in a plane crash. One of the cheerleaders was the Landstroms’ youngest daughter. Land-stroms were survived by two daughters, Jo Landstrom and Constance Drew. Jo Land-strom was twenty years old at the time of her parents’ deaths. Constance’s age at that time was not established by the record.

[¶ 6.] Upon the death of Ivan Landstrom and his wife, their interest in BHJMC passed to a trust with Jo Landstrom and Drew as beneficiaries. The value of this stock was $160,000 at the date of Ivan Landstrom’s death. The day after Ivan’s death, Shaver met with the trust representative indicating that if Shaver were to continue employment with BHJMC, Shaver wanted an ownership interest in the company. After the trustee informed Landstrom and Drew of Shaver’s position, Shaver’s demand was met by the trustee.

[¶ 7.] Following the death of the Ivan Landstroms, Shaver and his wife become close friends of Jo Landstrom and Drew. Jo Landstrom would later describe them as her surrogate parents. However this relationship was not to last.

*4 [¶8.] After incorporation of BHJMC in 1977, the stock interests were allocated. Shaver held a 17.356% ownership in BHJMC. In 1977 the trust was dissolved with Land-strom and Drew each acquiring a 83.058% interest in BHJMC. The remaining interest of 16.529% was held by Defendant Devereaux which he received from his father who had been one of the original owners.

[¶ 9.] In 1977 the shareholders of BHJMC entered into a buy-sell agreement. This agreement provided that Shaver would not be permitted to sell his stock to outside third parties during his lifetime and that BHJMC would purchase Shaver’s stock upon his death at a price set by a formula contained in that agreement. The agreement also required that any shareholder, other than Shaver, who desired to sell his or her stock, first offer that stock to BHJMC and then to the other shareholders at a price to be determined by the same formula. As per the agreement, only after BHJMC and other shareholders refused to purchase the stock, could it be sold to outside third parties.

[¶ 10.] This agreement was amended in 1987. The amendment allowed Shaver the right to veto a sale of stock by any other shareholder. According to attorney notes this was for the purpose of allowing Shaver to protect his interests by requiring “Milt’s (Shaver’s) approval or pay Milt off.” The trial court found as fact that although Land-strom signed the 1987 agreement, she did not know that the Shaver veto provision had been placed in the final draft and that she was misled by Shaver on this point.

[¶ 11.] Beginning in 1978 after the dissolution of the Landstrom Trust, the Board of Directors consisted of Shaver, Landstrom, Devereaux and Drew. Shaver, who had been BHJMC President since its incorporation in 1977, continued in that capacity until 1984 when he retired from that position. However, the trial court found Shaver continued to exercise significant day-to-day influence over management of BHJMC until Shaver’s death in 1992. Shaver was also Chairman of the Board of Directors until 1984. Landstrom held the post of Chairperson from 1984 until she voluntarily resigned in 1989.

[¶ 12.] By 1984 there had developed a strong difference in the business philosophies among the Directors. Landstrom felt BHJMC was drifting with lack of leadership from the Directors and lack of planning and fiscal accountability. She provided a series of reports to the other Directors in support of her arguments. Landstrom was troubled that BHJMC did not prepare a proposed budget for the upcoming year and was not attempting to determine and anticipate future demand for its various jewelry creations.

[¶ 13.] Shaver, Devereaux and Drew opposed Landstrom’s suggestions for changes in company direction. They operated under the philosophy, described by Devereaux, that “if it ain’t broke, don’t fix it.” They felt that BHJMC had prospered by a Board review of prior years’ profit-and-loss statements. They termed this “historical budgeting.” They viewed Landstrom’s various proposals for future planning and budgeting as “creative fantasy trips.”

[¶ 14.] During this period BHJMC initially experienced phenomenal growth and profits which Shaver, Devereaux and Drew pointed to as supporting their traditionalist business philosophies. At the time of Ivan Land-strom’s death in 1968, BHJMC employed 50 people. By 1990, the number of employees at the company had increased to approximately 400 people. Its annual sales increased from $24,000 to $37,000,000 by 1990, which constituted over a 50% share of the Black Hills gold jewelry market. Its stock was valued at $71 million. 1989 have been: Its profits since

FYE 6/30 1989 3 $ 6,983,392

FYE 6/30 1990 10,776,118

FYE 6/30 1991 7,618,949

FYE 6/30 1992 6,889,400

FYE 6/30 1993 14,773,948

FYE 6/30 1994 (1,691,870)

FYE 6/30 1995 (650,045)

[¶ 15.] From 1984 to 1993 the shareholders received an average annual return on their investment of 39%. 4 However, as is indicat *5 ed by the 1994 and 1995 figures, BHJMC’s fortunes declined rapidly at that point. The 50% market share fell to 27%. The value of the company stock fell from $71 million to $21 million.

[¶ 16.] By the late 1980’s, the once harmonious Directors’ meetings now were sharply split by differences. Although Landstrom attended meetings and presided as Chairperson, often with her personal attorney in attendance, the other three Directors would refuse to second any of her motions when they disagreed with them. In frustration, Landstrom voluntarily resigned as Chairperson and from the Board on September 20, 1989. She used her shares to elect a Director chosen by her to act in her place.

[¶ 17.] In January 1989, Landstrom orally informed the other Directors she was considering selling her shares in BHJMC because of the Directors’ disputes. The other Directors responded that perhaps they should also consider selling their shares thus putting the entire company up for sale. Landstrom proceeded with plans to sell BHJMC, the terms of which were later found unacceptable to the other Directors.

[¶ 18.] In August of 1989, Shaver gave Landstrom a copy of a letter from Shaver’s attorney to Shaver in which the attorney recommended Shaver should obtain more information about a potential purchaser of Landstrom’s stock before Shaver decided whether to exercise his veto under the 1987 amendment to the buy-sell agreement. Shaver repeated to Landstrom that Shaver was also considering a sale of his stock.

[¶ 19.] Landstrom never complied with the requirements of the 1987 amendments. She never informed the other Directors in writing of her desire to sell her stock and she basically ignored the agreement. At one point she demanded $25 million for her stock despite the fact that its price, pursuant to the 1987 amendment, would be established by a set formula.

[¶ 20.] Ultimately Shaver, Devereaux and Drew did not sell their stock. Neither did Landstrom. Instead she filed this action on December 14, 1990. Shaver would die in November of 1992. At that point, BHJMC purchased Shaver’s shares pursuant to the 1987 agreement. Thereafter Landstrom would hold 40% of the stock, Drew would hold 40% and Devereaux would hold 20%.

[¶ 21.] In ruling on the equitable cause of action, the trial court found that “the Company has declined in value from $71 million to $21 million as a result of misdirection by Shaver, Devereaux and Drew.” The verdict and special interrogatories answered by the jury earlier indicated it found the facts to be the same.

LEGAL ANALYSIS

[¶ 22.] 1. Did the trial court improperly join the legal and equitable claims?

[¶ 23.] Defendants filed a pretrial motion to sever the equitable and legal issues claiming that consolidation would result in the introduction of prejudicial evidence. The trial court denied the motion and the legal and equitable actions were tried simultaneously. 5

[¶ 24.] Bifurcation of claims is addressed by SDCL 15-6-42(b). This statute allows the trial court the discretion to order separate trials in proper circumstances “in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy!.]” 6 Sybesma v. Sybesma, 534 N.W.2d 355, 360 *6 (S.D.1995); Fullmer v. State Farm Ins., Co., 498 N.W.2d 357, 360 (S.D.1993).

[¶25.] Defendants argue that failure to bifurcate allowed the jury to be prejudiced by evidence which would have not been admissible had the bifurcation been allowed. Defendants made a motion to prohibit all evidence of the relationships between the parties which occurred prior to the six-year statute of limitations provided by SDCL 15-2-13. Shaver complains that the joint trial allowed Landstrom to particularly attack his actions from 1968 into the 1970’s which were highly prejudicial to him and not admissible in the legal causes of action. All Defendants argue that while these historical facts were relevant to the equitable claim of oppression as it focuses on the entire history of the participants’ relationship, Meiselman v. Meiselman, 309 N.C. 279, 307 S.E.2d 551, 563 (1983), there is no evidentiary basis for their admission concerning the legal claims. 7

[¶ 26.] Drew argues Shaver’s actions were more culpable than hers or Devereaux’s and thus she and Devereaux were prejudiced through “guilt by association” with Shaver’s activities on how he acquired his stock in 1968 and the 1987 veto provision being slipped into the buy-sell agreement.

[¶ 27.] Shaver further argues the legal and equitable issues did not involve common issues of fact. This is clearly incorrect. The breach of fiduciary duty to properly direct the corporation and the tortious interference claims significantly overlap common facts with the equitable oppression claim. At trial, counsel for BHJMC commented, and all Defendants agreed, that “[a]ll of these claims rest upon the same basic alleged misconduct.” Judicial economy is a reason to join claims where such joinder will not prejudice the parties. Maintaining separate trials on the legal and equitable issues in this case, where many of the facts overlap the two claims and in which the same evidence would be required to be introduced in the separate trials, would be particularly nonconducive to expedition and economy. The single trial from which this appeal arose consumed five weeks, involved numerous witnesses, and thousands of pages of documents.

[¶ 28.] Thus, we must determine under SDCL 15-6-42(b) whether the trial court abused its discretion when it refused to separate the legal and' equitable trials which purportedly prejudiced the Defendants. The “mere possibility of some prejudice does not justify separate trials where such prejudice is not substantial and there are strong countervailing considerations of economy.” Tri-R Systems, Ltd. v. Friedman & Son, Inc., 94 F.R.D. 726, 728 (D.Colo.1982). The Defendants as moving parties bear the burden of showing such prejudice. Stratagem Dev. Corp. v. Heron Int’l N.V., 153 F.R.D. 535, 551 (S.D.N.Y.1994); cf. State v. Sabers, 442 N.W.2d 259, 263 (S.D.1989) (severance of criminal counts).

[¶ 29.] The Defendants fail to make a specific showing of prejudice other than their general claims listed above. Drew claims she became a victim of “guilt by association” when the trial court permitted the jury to hear testimony regarding Shaver’s questionable conduct concerning the manner in which he acquired his stock in 1968. However, Drew, as Landstrom’s sister, was subject to the same treatment by Shaver as was Land-strom and could rightly claim she was equally a victim of Shaver’s stock acquisition activities.

[¶30.] Devereaux’s complaint about the same treatment cannot be so easily reconciled. The historical background of the Shaver acquisition of his stock at the time of the deaths of the Ivan Landstrom family could have the potential to prejudice a jury from the impartial sifting of the evidence to arrive at its factual determinations on the individual causes of action against the individual Defendants. While the facts may be properly admitted under an abuse of discretion standard, that is not granting a license to make any and all use of them to tilt the even playing field which a court of justice *7 seeks to provide for the resolution of disputes.

[¶ 31.] To her credit, after the trial court allowed admissibility of the evidence concerning the circumstances surrounding Shaver’s acquisition of this BHJMC stock, Landstrom did not seek to abuse this evidence. In her opening statement while making a brief reference to the stock acquisition, Landstrom told the jury that this case was not about how Shaver acquired this stock, but rather about oppression. In a closing argument that transcribes to sixty pages, Landstrom spent but one paragraph on the Shaver stock acquisition matter and then only for purposes of beginning the story of the business relationship between Landstrom and Shaver.

[¶ 32.] The care with which the jury understood its duties as evidenced by the special verdict form shows that the jury properly considered the culpability of each individual Defendant on each cause of action and did not lump all Defendants or all causes of action together. In fact on the cause of action of negligent direction of BHJMC, the jury awarded no damages against the Defendants although finding in favor of Landstrom on the merits.

[¶ 33.] Clearly the outcome of the equitable cause of action could not have been prejudiced as it was ultimately decided by the trial court which, while agreeing with the jury’s advisory verdict, entered seventy-two pages of findings of fact and conclusions of law prior to doing so.

[¶ 34.] We emphasize that consolidation of causes of action in cases such as this must be carefully considered by the trial court. Prejudice could well result from facts which are totally irrelevant to a given cause of action or a party. 8 Here Landstrom’s evidence of her claimed victimization by Shaver in the manner surrounding her parents’ deaths and how Shaver acquired his stock does give us some cause for concern. This appeal presents a close case and we do not recommend this manner of trying claims to trial courts with this type of fact situation in the future. However, given the totality of the factual circumstances and this Court’s disposition of the legal causes of action, we find the trial court did not abuse its discretion in the joint manner in which it tried the causes of action and therefore, we affirm on this issue.

[¶ 35.] 2. Did the trial court err in determining that Landstrom had been oppressed?

[¶ 36.] The trial court, in its findings of fact and conclusions of law, and the jury, in its advisory verdict, found that the Defendants had oppressed Landstrom. As equitable relief, the trial court ordered Devereaux and Drew, as the remaining shareholders, to purchase Landstrom’s stock in BHJMC for $8.4 million. Devereaux and Drew appeal. Landstrom, apparently satisfied with the outcome, did not file a cross appeal on this issue.

[¶ 37.] It is settled law that we review a trial court’s findings of fact under the clearly erroneous standard. Jasper v. Smith, 540 N.W.2d 399, 401 (S.D.1995) (citing Cordell v. Codington County, 526 N.W.2d 115,116 (S.D.1994)). Under this standard, we will not disturb the court’s findings unless we are firmly and definitely convinced, after a review of the entire evidence, a mistake has been made. Id. We review a trial court’s conclusions of law under a de novo standard. Id. Under a de novo review, we give no deference to the trial court’s conclusions of law. Id: Whether conduct is oppressive is a legal conclusion. Robblee v. Robblee, 68 Wash.App. 69, 841 P.2d 1289, 1293 (1992); Davis v. Sheerin, 754 S.W.2d 375, 380-81 (Tex.App.1988).

[¶ 38.] South Dakota has adopted the Model Business Corporation Act. SDCL 47-7-34 allows a trial court to grant relief in cases brought by a shareholder alleging oppression. The Code does not define what constitutes oppression. Other courts have defined oppression in the context of: (1) reasonable expectations of the minority shareholder or (2) as burdensome, harsh and wrongful conduct by the majority shareholders. Gimpel *8 v. Bolstein, 125 Misc.2d 45, 477 N.Y.S.2d 1014, 1018 (Sup.Ct.1984). The New York Court of Appeals has set out the following standard:

Defining oppressive conduct as distinct from illegality in the present context has been considered in other forums. The question has been resolved by considering oppressive actions to refer to conduct that substantially defeats the ‘reasonable expectations’ held by minority shareholders in committing their capital to the particular enterprise.

A shareholder who reasonably expected that ownership in the corporation would entitle him or her to a job, a share of corporate earnings, a place in corporate management, or some other form of security, would be oppressed in a very real sense when others in the corporation seek to defeat those expectations and there exists no effective means of salvaging the investment.

A court considering a petition alleging oppressive conduct must investigate what the majority shareholders knew, or should have known, to be the petitioner’s expectations in entering the particular enterprise. Majority conduct should not be deemed oppressive simply because the petitioner’s subjective hopes and desires in joining the venture are not fulfilled. Disappointment alone should not necessarily be equated with oppression.

In re Kemp & Beatley, Inc., 64 N.Y.2d 63, 484 N.Y.S.2d 799, 473 N.E.2d 1173, 1179 (1984) (internal citations and text omitted). The New York standard has been cited with approval by other courts addressing cases involving oppression of minority shareholders. See Stefano v. Coppock, 705 P.2d 443, 446 n. 3 (Alaska 1985); Smith v. Leonard, 317 Ark. 182, 876 S.W.2d 266, 272 (1994); Gee v. Blue Stone Heights Hunting Cl., 145 Pa.Cmwlth. 658, 604 A.2d 1141, 1145 (1992) (noting the New York Court of Appeals’ experience with oppression cases and adopting its standard); Balvik v. Sylvester, 411 N.W.2d 383, 387 (N.D.1987). See also Ferdinand S. Tinio, Annotation, What Amounts to “Oppressive” Conduct Under Statute Authorizing Dissolution of Corporation at Suit of Minority Stockholders, 56 A.L.R.3d 358 (1974 & Supp 1996).

[¶39.] Reasonable expectations have been described as:

Mere disappointment in the results of a venture is not sufficient. Rather, the statutory protection is more dramatic, and ‘oppression should be deemed to arise only when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the [minority shareholder’s] decision to join the venture.’

Matter of Wiedy’s Furniture Clearance Center, 108 A.D.2d 81, 487 N.Y.S.2d 901, 903 (1985). As noted above, disappointment is not necessarily sufficient to equal oppression. The reasonable expectations are to be analyzed in light of the entire history of the parties’ relationship, and include expectations such as participation in management of corporate affairs. Meiselman, 307 S.E.2d at 560-63. It must be emphasized however, that a minority shareholder’s reasonable expectations must be balanced against a corporation’s ability to exercise its business judgment and run its business efficiently. Muellenberg v. Bikon Corp., 143 N.J. 168, 669 A.2d 1382, 1387 (1996). Herein, the trial court granted Landstrom relief based mainly on the application of the reasonable expectations test but held it would have ruled the same way under the alternative “burdensome, harsh and wrongful” test. Gimpel, 477 N.Y.S.2d at 1018.

[¶ 40.] Defendants launch a four-pronged attack on the trial court’s equitable award to Landstrom:

(1) SDCL 47-7-34 does not authorize the equitable relief granted Landstrom;

(2) There is insufficient evidence to find oppression to justify equitable relief;

(3) According to Devereaux and Drew, if there is wrongdoing, it was done by Shaver; and

(4) Landstrom is not entitled to equitable relief because of her “unclean hands.”

[¶ 41.] Defendants initially argue that SDCL 47-7-34 does not authorize the equitable relief granted by the trial court. Defen *9 dants state that the plain language of the statute only allows the trial court to liquidate the assets of the corporation in cases of oppression and not to order the majority shareholders to purchase the minority’s shares. 9 Other courts in deciding cases brought under similar statutes have held that a trial court has discretion, within its broad powers of equity, to create an appropriate remedy based on the evidence presented. Alaska Plastics, Inc. v. Coppock, 621 P.2d 270, 274 (Alaska 1980); Sauer v. Moffitt, 363 N.W.2d 269, 274-75 (Iowa App.1984) (citing Baker v. Commercial Body Builders, Inc., 264 Or. 614, 507 P.2d 387, 395-96 (1973)); Balvik, 411 N.W.2d at 388; McCauley v. Tom McCauley & Son, Inc., 104 N.M. 523, 724 P.2d 232 (N.M.App.1986). This may include entry of an order requiring the wrongdoers to buy the stock of the complaining shareholder. Balvik, 411 N.W.2d at 388-89, 10 Sauer, 363 N.W.2d at 274-75. The statute does not actually mandate liquidation in cases of oppression but rather provides that the court has this ultimate power to liquidate. It makes little sense to leave the trial courts with two draconian options of helplessly dismissing outright a proven cause of action or ordering the dissolution of a corporation of the size and impressive record of BHJMC.

[¶ 42.] Second, the Defendants argue that there is insufficient evidence to find oppression to justify equitable relief. Oppression is based on the totality of factual circumstances and is not relegated to a bright-line rule or implementation of a checklist. While a single act may not amount to oppression, under the totality of all relevant circumstances of the case, oppression may be found to exist. See River Management Corp. v. Lodge, 829 P.2d 398, 405 (Colo.Ct.App.1991); cf. Vermilyea v. BDL Enter., Inc., 462 N.W.2d 885, 888 (S.D.1990).

[¶ 43.] The trial court found that Land-strom expected to have meaningful participation in the direction of BHJMC. Her expectations were based upon Landstrom’s status as a substantial shareholder in a closely-held company, her position as a Director, her election as Chairperson of the Board, her personal relationship with co-owners Shaver, Devereaux and Drew over the years, and her *10 sense of obligation to protect and preserve the family legacy. However, the fact that she held these positions, while perhaps raising her subjective expectancies, does not correspond to an objective right to be allowed to run the company.

[¶44.] Defendants argue that oppression cases are limited in non-fraud situations to where the minority shareholder is in a “freeze-out” or “squeeze-out” situation. In these types of settings, courts have observed that,

[t]he squeezers (those who employ the freeze-out technique) may refuse to declare dividends; they may drain off the corporation’s earnings in the form of exorbitant salaries, and bonuses to the majority shareholder-officers and perhaps to then-relatives ...; they may deprive minority shareholders of corporate offices and of employment by the company; they may cause the corporation to sell its assets at an inadequate price to the majority shareholders.

Sugarman v. Sugarman, 797 F.2d 3, 7 (1stCir.1986). While freeze-out or squeeze-out situations may be typical of oppression cases, they are not exclusive.

[¶ 45.] Although the trial court entered six pages of conclusions of law on the issue of oppression, significantly it did not find in this case that there were attempts at a squeeze-out or a freeze-out by the Defendants. The trial court held the following conduct by Shaver, Drew and Devereaux evidenced oppression of Landstrom:

Defendants’ respective efforts in directing the Company, failure to pay adequate attention to safety concerns, deception in obtaining Landstrom’s signature to the 1987 Revision, refusal to deal on a good faith basis with her attempts to sell her stock, disdain for her desire to treat employees decently, animosity toward her that they have exhibited during this litigation, and continued actions at annual shareholder meetings designed to prevent her from meaningfully participating in the Company, all constitute facts from which this Court concludes Shaver, Drew and Devereaux oppressed Plaintiffs. This conclusion is consistent with the jury’s advisory verdict.

Determining whether conduct arises to the level of oppression depends upon the individual circumstances in any given case. Smith, 317 Ark. 182, 876 S.W.2d 266; Kemp, 484 N.Y.S.2d 799, 473 N.E.2d at 1179.

[¶ 46] Typically, relief has been granted in non-fraud oppression cases where the majority has engaged in a freeze-out or squeeze-out conduct. See e.g. Balvik, supra. Landstrom has not established even one of the common oppressive devices use to squeeze-out/freeze-out or otherwise destroy the reasonable objective expectations of a minority shareholder. Perhaps recognizing this, she concedes in her brief that she “has never contended this was a ‘freeze-out’ or ‘squeeze-out’ case.” Rather she argues her case consists of

evidence established and the trial court found continuing efforts to block, frustrate, and belittle Landstrom’s efforts to properly run the company, and then the aggravation of that course of oppression by thwarting Landstrom’s efforts to escape the oppression by selling her shares. This conduct willfully took advantage of the majority’s ability to dominate Landstrom in her attempts to participate in the Company.

(Landstrom brief, p. 65). It is difficult, if not impossible, to find a case which categorizes similar acts as oppression. 11

*11 [¶ 47.] It should be noted that while Land-strom has always been a minority shareholder, there has never been a shareholder who would qualify as a majority shareholder. Landstrom’s difficulties stem from the fact that she was unable to get a single other minority shareholder to agree with her views. In fact Landstrom along with Drew have been the largest single shareholders in BHJMC since it was incorporated in 1977.

[¶ 48.] Landstrom always received her proportionate share of dividends which totaled in excess of $20 million by 1994. She was never deprived of corporate offices as she was elected Chairperson of BHJMC upon Shaver’s retirement in 1984. Landstrom was notified and allowed to attend all Directors meetings where she presided as Chairperson ■until her voluntary resignation from the Chair and the Board. At her option, her attorney was allowed to also attend and advise her during the course of the meetings. When she voluntarily resigned, she was allowed to pick her successor on the Board. In 1993 she elected two directors, one of whom became the Chair.

[¶ 49.] Landstrom was employed by BHJMC from time to time as a consultant and was always paid when she requested it. She was at no time forced to sell her shares let alone at less than their value. When she decided she wanted to sell her shares, she admitted she failed to follow the buy-sell agreement she had previously signed, and instead demanded $25 million for her shares which was in excess of the formula of the agreement which should have controlled. 12 In fact, when the Shaver shares were purchased pursuant to the buy-sell agreement after his death, Landstrom acquired her pro rata share increasing her holdings from 33% of the corporate stock to 40%.

[¶ 50.] The balance of her complaints center around the internal operation of BHJMC. As one witness put it, BHJMC was successful almost in spite of itself. It is not as if the Defendants abandoned prior practice of having budgets, management accountability and proper planning. The ideas Landstrom championed were new and radical to this company, even if they were common practice in most corporations. They were also proposed against a financial background of impressive profits and growth under the existing system. For example, the evidence showed that when a finance and accounting department was created in 1993 or 1994, it was the first in the company’s lengthy history. The Defendants’ reluctance to change may have, in hindsight, been ill-advised and even financially disastrous but it does not constitute oppression. It is not considered oppression when the controlling shareholders seek to control management and the affairs of their corporation. Muellenberg, 669 A.2d at 1389.

[¶51.] Finally, there is no evidence that the Defendants violated any laws of this state, violated the by-laws of the corporation or engaged in any financial self-dealing conduct to the exclusion of Landstrom.

[¶ 52.] We conclude that under either the reasonable expectations test or the burdensome, harsh and wrongful conduct test, as a matter of law, Landstrom has failed to establish oppression. All she has established is that she was outvoted and subjectively disap *12 pointed with corporate management. There are none of the traditional hallmarks of action by majority shareholders which have been held to constitute oppression. We are unwilling to elevate subjective minority shareholder dissatisfaction to constitute oppression.

[¶ 53.] 3. Did the trial court err in allowing Landstrom to proceed directly against the individual shareholders rather than requiring a derivative action?

[¶ 54.] The majority rule is that an action to redress injuries to a corporation cannot be maintained by a shareholder on an individual basis but must be brought derivatively. Crocker v. Fed. Deposit Ins. Corp., 826 F.2d 347, 349 (5thCir.l987); cert, denied, 485 U.S. 905, 108 S.Ct. 1075, 99 L.Ed.2d 235 (1988); Meyerson v. Coopers & Lybrand, 233 Neb. 758, 448 N.W.2d 129,133 (1989); Engstrand v. West Des Moines State Bank, 516 N.W.2d 797, 799 (Iowa 1994). The generally recognized rule for determining whether a cause of action belongs to the corporation, rather than to an individual shareholder, is to ascertain whether “the injury to each stockholder is of the same character.” Arent v. Distribution Sciences, Inc. 975 F.2d 1370, 1372 (8thCir.l992). 13 In other words, under the general rule, for a shareholder to maintain an individual action, the shareholder must establish a “special injury” which is separate and distinct from that of other shareholders. Cowin v. Bresler, 741 F.2d 410, 415 (D.C.Cir.1984); Engstrand, 516 N.W.2d at 799; Meyerson, 448 N.W.2d at 133. Diminution in the value of stock is a loss that is sustained by all shareholders and thus subject to the derivative action requirement. Arent, 975 F.2d at 1373; Meyerson, 448 N.W.2d at 134.

[¶ 55.] This Court has followed this general rule on two occasions. In Glover v. Manila Gold Mine & Mill. Co., 19 S.D. 559,104 N.W. 261 (S.D.1905), we held the plaintiffs claim of an individual' judgment was not appropriate as the