SW Legal Educational Publishing

Fiduciary Duty Not Breached in Firing of Employee/Minority Shareholder
Description Majority shareholders, who were also employees of closely held corporation, fired the minority shareholder/employee and removed him from the board. Tennessee high court found no breach of fiduciary duty since no evidence was provided that majority did not have the best interests of the corporation in mind.
Topic Business Organization
Key Words Fiduciary Duty, Minority Shareholder
C A S E   S U M M A R Y
Facts Three men were the only and equal shareholders in a printing company. They were also paid employees of their company. After an argument about business matters, two men fired the other one (Nelson) and removed him from the board. Nelson sued, claiming, among other things, that defendants breached a fiduciary duty they owed him. Trial court dismissed all claims but the court of appeals reinstated the fiduciary duty claim. Defendants appealed.
Decision Suit dismissed. The majority shareholders "were obligated to deal fairly and honestly with Nelson and could not act out of avarice, malice, or self-interest in violation of their fiduciary duty to him as a shareholder." Evidence is that Nelson was an at-will employee and that his dismissal was for business reasons, and was, therefore, proper. The majority owners had the right to dismiss an employee, including Nelson in that capacity, but they also owed him a duty of good faith and fairness as an officer. Nelson presented no evidence that the action was "prejudicial to the corporation's best interest."
Citation Nelson v. Martin, Slip Copy (1997 WL 726405, Sup. Ct., Tenn.)
or
958 S.W. 2d 643 (Sup. Ct., Tenn., 1997)

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