The term "minority" in the context of Pennsylvania shareholder litigation does not mean a person who owns or controls less than 50% of the corporate stock. Baron v. Pritzker, 2001 Pa. Dist. & Cnty. Dec. LEXIS 447 (Pa. 2001). Under certain circumstances, a 50% shareholder could be oppressed by a more dominant shareholder who also controls 50% of the company. The Baron Court looked to Delaware and Oregon law in finding that "equal owners of a close corporation are each entitled to the other’s performance of fiduciary duties of loyalty, good faith, and full disclosures.” Id. (Citing, Delaney v. Georgia-Pacific Corp., 564 P.2d 277, 281 (Or. 1977); Gilbert v. El Paso Co., 490 A.2d 1050, 1055 (Del. Ch. 1984). Under Pennsylvania law, the controlling shareholder owes a fiduciary duty or quasi-fiduciary duty to the non-controlling shareholder from using their powers in such a way as to exclude the non-controlling shareholder from their proper share of the benefits of the corporation. In re Jones & Laughlin Steel Corp., 488 Pa. 524, 530-31 (1980); Weisbecker v. Hoisery Patents, Inc. 356 Pa. 244, 250 (1947).
Hence, under Pennsylvania law controlling shareholders not only owe a duty to the corporation itself, but they owe certain fiduciary duties to the non-controlling shareholders. In the context of oppressed minority shareholder litigation, Pennsylvania employs the "reasonable expectations" of the shareholder test to determine what actions or inactions could constitute oppression. The Baron Case follows the law in Oregon, Delaware and New Jersey by focusing on the level of control rather than the amount of stock the shareholder holds. Thus, a person could control 50% and assert breach of fiduciary duty and oppression claims against the equal partner.
Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.