Alaska Plastics, Inc. v. Coppock
621 P.2d 270, 1980 Alas. LEXIS 656 (1980)
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Rule of Law:
Shareholders in a close corporation owe one another a fiduciary duty of utmost good faith and loyalty. When majority shareholders breach this duty by according themselves benefits not shared with the minority, the appropriate remedy is to grant the minority an equal opportunity to receive those benefits, not to force a corporate buyout of the minority's shares unless a buyout is the specific benefit the majority received.
Facts:
- In 1961, Ralph Stefano, C. Harold Gillam, and Robert Crow formed Alaska Plastics, Inc., with each holding 300 shares and serving as the sole directors and officers.
- In 1970, as part of a divorce settlement, Crow transferred 150 of his shares to his former wife, Patricia Muir, giving her a one-sixth interest in the corporation.
- From 1971 to 1974, the corporation failed to properly notify Muir of annual shareholders' meetings.
- During this time, the three directors voted themselves annual director's fees and a salary for Gillam, but the corporation never paid any dividends, and Muir received no money from it.
- The directors used corporate funds to pay for their wives to accompany them to meetings in Seattle for no business purpose.
- In 1974, the directors offered to purchase Muir's shares for $15,000, which she rejected as too low.
- Later in 1974, the directors acquired another company, Broadwater Industries, without consulting Muir.
- After the corporation's Fairbanks plant was destroyed by a fire in 1975, Alaska Plastics ceased its own production and became a holding company for its new subsidiary.
Procedural Posture:
- Patricia Muir filed suit against Alaska Plastics, Inc., and its three majority shareholders (Stefano, Gillam, and Crow) in the superior court, the state's trial court of general jurisdiction.
- The case was submitted to an advisory jury, which found the corporation’s offer to buy Muir’s shares was not equitable and determined a fair offer would have been $32,000.
- The trial judge entered a judgment finding that the corporation's conduct was 'oppressive' and ordered the corporation to purchase Muir's shares for $32,000 plus interest, costs, and attorney's fees.
- Both Muir and the defendants (Alaska Plastics et al.) filed appeals to the Supreme Court of Alaska, the state's highest court.
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Issue:
Does a court have the equitable power to order a close corporation to purchase a minority shareholder's shares at fair value as a remedy for oppressive conduct, when the majority shareholders have not afforded themselves a similar stock-purchase benefit?
Opinions:
Majority - Connor, Justice
No. A court cannot order a close corporation to purchase a minority shareholder's shares as an equitable remedy unless that benefit—a corporate stock purchase—is one that the majority shareholders have already granted themselves. While shareholders in a close corporation owe one another a fiduciary duty of utmost good faith and loyalty, the remedy for a breach must align with the 'equal opportunity' doctrine. Here, the majority shareholders, Stefano, Gillam, and Crow, did not have the corporation purchase their own shares; therefore, ordering the corporation to purchase Muir's shares is not an appropriate remedy. A court cannot create a contract for the parties by ordering specific performance of an unaccepted offer on different terms. The actual benefits the majority received and denied to Muir were financial payments like director's fees and salaries. The proper remedy is to determine if these payments were constructive dividends and allow Muir to share equally in them. The case is remanded for the trial court to make findings on this issue and fashion an appropriate remedy.
Analysis:
This decision formally adopts the fiduciary duty standard for close corporations in Alaska, drawing from the influential Massachusetts case, Donahue v. Rodd Electrotype Co. It establishes the 'equal opportunity' doctrine as the guiding principle for remedies, meaning the remedy must be tailored to the specific harm or unequal benefit. The ruling limits the power of courts to order forced buyouts, tying this potent remedy directly to situations where the majority has created a market for its own shares. This holding directs minority shareholders to focus litigation on recovering their share of tangible benefits, such as 'constructive dividends,' rather than seeking an exit from the company as a default remedy for general oppression.
