Minnesota Shareholders in a Closely Held Iowa Family Farm Corporation Were Awarded More Than $4.2 Million in a Shareholder Oppression Case

March 18, 2015

Bruce C. Recher, business litigation attorney, represented three Minnesota residents who were minority shareholders in an Iowa family farm corporation and were awarded more than $4.2 million in a cash buyout as “fair value” of their shares by a judge of the Iowa Business Specialty Court. This was the first trial conducted by the Iowa Business Specialty Court, which was established as a pilot project in Iowa in 2013 to focus on complex business litigation.

The Minnesota shareholders argued that their brothers, who were directors and in control of the family farm corporation, and who farmed the corporation’s 700 acres of farmland, acted unfairly in

• Renting the corporation’s farmland to themselves at below-market rates,
• Stopping regular dividends that had been paid for years,
• Making unfair offers to buy stock, and
• Recasting deals already in place so one of the brothers could obtain additional stock.

At the outset of the case, the plaintiffs requested the court dissolve the corporation or order the defendants to buy them out. After 15 months of litigation, the defendants agreed to buy the Minnesota minority owners’ shares for “fair value” under Iowa law on terms set by the Court.

Most of the issues at the trial focused on valuation. The judge rejected the defendants’ arguments that the value of the minority shares should be discounted for lack of marketability, a minority interest, or for the income tax effects of such a buyout in an S corporation. The court found one of the defendant directors breached his fiduciary duties by attempting to redo a completed transaction with one of his brothers so he could obtain more stock, without disclosing what occurred to the other shareholders.

Bruce C. Recher of Henson Efron was lead counsel for the Minnesota shareholders. Wesley T. Graham of Des Moines, Iowa (an alumni of Henson Efron) was Iowa counsel. Stephen L. Hopkins, tax attorney, of Henson Efron provided valuable tax advice.