Pedro v. Pedro - Lecture Notes

PEDRO v. PEDRO 489 N.W.2d 798 (Minn.App.1992) FACTS: Parties: Appellant: Carl Pedro, Eugene Pedro, The Pedro Company (Δ) Appellee: Alfred Pedro (Π) Procedural History: Trial court awarded damages for dissolution Π Δ appealed Appellate court remanded to make findings Trial court awarded damages for breach of fiduciary duty and for wrongful termination of lifetime employment to Π o $766,582.33 – value of 1/3 ownership o $58,260.69 – interest on award o $563,417.67 – breach of fiduciary duty o $68,690.05 – interest on award o $256,740 – wrongful termination o $31,750.37 – interest on award o $200,000 – attorney’s fees and expenses o $6,063 – attorney fees for having to respond to appellants motion Relevant Facts: Alfred, Carl and Eugene are brothers who each owned one third interest in TPC – a closely held MN corporation which manufactures and sells leather products TPC had annual sales of approximately $6 million Carl worked for TPC since 1940 Eugene worked for TPC since 1939 Alfred worked there for 45 years and was fired in 1987 Each brother, as equal shareholders, received the same benefits, compensation and had the same voting rights in the management of the company 1968 the three brothers and their father entered into a stock retirement agreement (SRA) which made it possible to purchase a shareholder’s stock upon death or when a living stockholder chose to sell 1975 the father died and the company purchased his stock from his estate pursuant to SRA 1979 the 3 brothers re-executed the SRA, reducing the purchase price of the shares o Reduced share price by 25% of net book value and included good will 1987 Alfred discovered there was a $330,000 discrepancy between the accounting records and the TPC checkbook TPC, at the persistence of Alfred, hired an outside accountant who could not find the problem and was fired but admitted to the 3 brothers that there was between $140 – 147 thousand that was unexplainable Eugene began to undermine Alfred in management and Alfred was told to forget about the discrepancy or be fired A second accountant was hired and could not find the discrepancy but was denied access to certain documents and there were at least 20 leads not followed up on 1987 Alfred was placed on mandatory leave of absence from TPC then fired. Employees were told Alfred had a nervous breakdown ISSUE: Whether the evidence sufficient to support the trial court’s finding of breach of fiduciary duty Whether the trial court properly determined Alfred Pedro had a reasonable expectation of lifetime employment, thereby awarding him damages for lost wages following the buyout until he reached age 72 Whether the trial court made proper determinations regarding joint and several liability, prejudgment interest, recusal of the trial judge, and attorney’s fees PARTIES’ ARGUMENTS: Appellant: No breach of fiduciary duty could exist because there had been no diminution in the value of the corporation or stock Appellee: DISPOSITION OF THE COURT: RULE OF LAW: Shareholders in a closely held corporation are analogous to a partnership, they owe one another a fiduciary duty The reasonable expectations of a shareholder in a closely held corporation are a job, salary, a significant place in management, and economic security for his family In a closely held corporation the nature of the employment of a shareholder may create a reasonable expectation by the employee-owner that his employment is not terminable at will If a court finds a party to a proceeding brought under this section has acted arbitrarily, vexatiously or otherwise not in good faith, it may, in its discretion, award reasonable expenses, including attorneys fees and disbursements to any of the other parties HOLDING: Δs breached a fiduciary duty to Π when they undervalued the purchase price of the shares to be bought out Alfred Pedro had a reasonable expectation of lifetime employment Trial court had the discretion award attorneys fees COURT’S REASONING: Δ’s never implemented payments due under SRA Δs interfered with Π’s responsibilities at TPC and hired a private investigator to follow him around while not at the office Δs fabricated accusations of neglect and malfeasance which were not substantiated Δs admit their motion requesting a buyout was acting in a manner that was unfairly prejudicial to Π Carl Pedro Sr. worked at the corporation until his death Eugene testified that he worked at the corporation over 50 years and intended to always work at the corporation Carl testified worked at TPC for 34 years Alfred testified that he expected a lifetime job like his father