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Advanced Communication Design8/3/2000
We granted review to consider whether, in a court-ordered buy-out of a minority shareholder pursuant to Minn. Stat. § 302A.751 (1998), a marketability discount should be applied to the value of the shares, and whether in a closely held corporation a minority shareholder with only nonvoting shares owes a fiduciary duty to the corporation or its other shareholders.
Appellant Advanced Communication Design, Inc. (ACD) brought suit against respondent Brian Follett (respondent), a shareholder and former employee, alleging several claims including breach of fiduciary duty as a minority shareholder. Respondent counterclaimed against ACD and filed a third-party complaint against its President Marco Scibora (appellant Scibora) requesting that the trial court judicially intervene to dissolve ACD or grant other relief pursuant to section 302A.751 based on conduct respondent claims was unfairly prejudicial to him. The trial court found that appellant Scibora had acted in an unfairly prejudicial manner toward respondent and ordered appellants to purchase respondent's shares in ACD at a price that did not include a marketability discount. The trial court also held that respondent did not owe ACD a fiduciary duty as a minority shareholder. The court of appeals affirmed on both issues. We affirm as to the court of appeals ruling on the fiduciary duty of a minority shareholder but reverse and remand as to application of a marketability discount.
Appellant Scibora founded ACD in 1986 to engage in the business of voicemail and integrated voice response (IVR) systems and from its inception has been its President, its sole voting shareholder, and its only Director. Respondent joined ACD as a vice-president in 1988 and worked primarily with ACD's voicemail and IVR technologies.
In 1990, respondent and Don Stein, another employee, each purchased 1500 shares of ACD's Class B nonvoting stock resulting in ownership of ACD divided equally among appellant Scibora, respondent and Stein, but with appellant Scibora owning all of the Class A voting stock. In July of 1994, the three shareholders and ACD entered into a "Stock Purchase and Transfer Restriction Agreement of the Shareholders of Advanced Communication Design, Inc." (buy-sell agreement) which included a provision that if a shareholder's employment is terminated for reasons other than disability or death, the corporation may exercise an option to purchase the terminating shareholder's shares within 90 days. The agreement further provided that if the parties could not agree on a valuation, the value of the shares would be determined in an appraisal by Exponential Business Valuation and Financial Advisory, Inc. (Exponential), or its successor, or any other firm selected by agreement of the parties. Stein terminated his employment with ACD as of December 1995 and was paid $45,000 in severance and for a non-compete agreement and $50,000 for his nonvoting shares. At that time appellant Scibora informed respondent of the purchase price of Stein's stock but did not inform him of the $45,000 payment for the severance and non-compete agreement.
In January 1996, appellant Scibora's wife, Frances Scibora (F. Scibora), who had not been previously employed by the company, was appointed as the Chief Operating Officer of ACD and thus became respondent's supervisor. The letter confirming the terms of her employment stated that her compensation would include a salary of $20,000 and 1500 shares of nonvoting stock in a restricted stock award–750 shares to be issued effective January 1, 1997, and another 750 shares to be issued effective July 1, 1997. The award would be forfeited if she failed to remain an employee of the company during the restricted p
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