South-Western Legal Studies in Business

Court May Not Force Sale of Corporation Unless No Reasonable Alternative Exists
Description Nevada high court reversed a lower court order to force the sale of a corporation that was the subject of a fight among shareholders. The shareholders did not request a forced sale, and it should only be imposed in the absence of other alternatives to settle a dispute.
Topic Business Organization
Key Words Corporations; Shareholders; Fiduciary Duties; Forced Sale
C A S E   S U M M A R Y
Facts Bedore, Familian and Athey formed a corporation to buy and run convenience stores in Nevada. After a dispute, Familian and Athey (F&A) offered to buy Bedore’s interest in the company, but he refused to sell at the price offered. F&A voted him off the board and took control of all operations. They also formed a new company to buy more stores, excluding Bedore from that operation. He sued for breach of fiduciary duties, contending that F&A paid themselves excessive salaries and took opportunities to their new company that should have belonged to the corporation. The trial court held that salaries were excessive and ordered F&A to repay the corporation $138,300 and ordered them not to engage in activities that would be in competition with the corporation. It also ordered them to put the corporation up for sale by a blind bid process; the corporation going to the highest bidder in the buy-out process; the three owners splitting the sale price. F&A appealed.
Decision

Reversed in part. Courts have the power to order corporate buy-outs as an alternative to dissolution, but that remedy may be imposed only if it is the only practical alternative to dissolution and if some lesser remedy will not suffice. The buy-out was not warranted here. The fight among the three shareholders did not threaten irreparable injury to the corporation. The court properly ordered the majority shareholders to return the excess salaries and enjoined them from engaging in a business in competition with that of the corporation. But Bedore did not request the forced sale of the corporation, so it should not have been ordered.

Citation Bedore v. Familian, 125 P.3d 1168 (Sup. Ct., Nev., 2006)

Back to Business Organization Listings

©1997-2006  SW Legal Studies in Business. All Rights Reserved.