Posted on: October 25th, 2016

The Iowa Court of Appeals issued its opinion on July 27, 2016 in the Baur Farms litigation. The case concerns oppression of minority shareholders. The plaintiff and other relatives succeeded to ownership of a family farm corporation (BFI). The plaintiff was a minority shareholder and served as a director, but not as an officer of BFI. The plaintiff had never farmed. He attempted to have BFI or other shareholders purchase his shares for many years, but the parties disagreed concerning the value of the corporation and the value of the plaintiff’s shares. In 2007, the plaintiff offered to sell his shares to the BFI for $1.825 million. When BFI did not respond, the plaintiff filed an action seeking dissolution of the corporation based on a claim of oppressive conduct and breach of fiduciary duty.

The case bounced through the district and appellate levels, before being appealed to the Iowa Supreme Court, which found that “every shareholder may reasonably expect to share proportionally in a corporation’s gain,” and “when this reasonable expectation is frustrated, a shareholder-oppression claim may arise.” The Iowa Supreme Court remanded the case to apply the new standard. On remand, the district court found that the plaintiff failed to meet his burden to prove oppression because the amount he demanded in the buyout exceeded the fair market value of his equity interest. The Court of Appeals’ decision recently affirmed the district court’s ruling.

The court relied on the Iowa Supreme Court’s ruling that “majority shareholders act oppressively when, having the corporate financial resources to do so, they fail to satisfy the reasonable expectations of a minority shareholder by paying no return on shareholder equity while declining the minority shareholder’s repeated offers to sell shares for fair value.” The fair value of the plaintiff’s shares was found to be the market value of BFI’s assets, discounted for their liquidation value. Here, plaintiff’s offer to sell his shares exceeded the fair value of his interest and the corporation’s failure to accept his offer “did not show oppression.”

Besides the implications this case has on oppression cases and expectations on minority shareholders, the Baur case reminds us that there is an especially pressing need for workable succession plans in closely-held businesses.

This is the finale of the Baur Farms dispute for now—we will have to see whether the Iowa Supreme Court gets another chance to clarify this evolving area of law on appeal.

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