Merner v. Merner
Docket: No. 03-16449; D.C. No. CV-02-02336-CW
Court: Court of Appeals for the Ninth Circuit; March 17, 2005; Federal Appellate Court
Peter Merner appealed a district court's summary judgment and permanent injunction that prohibited him from selling shares of Merner Land Company to any entity that could jeopardize the Company's Subchapter S tax status. The key legal question was whether Peter, as a minority shareholder in a closely held corporation, owed a fiduciary duty to the majority shareholder, Carl, or the Company itself, which would prevent the sale to Catamount Operating and Funding Company, LLC. The court found that while the California Supreme Court has not explicitly addressed this issue, its reasoning aligns more closely with Delaware's approach rather than Massachusetts'. The California Supreme Court's prior rulings suggest that minority shareholders in closely held corporations do not owe enhanced fiduciary duties to majority shareholders compared to those in non-closely held corporations. For instance, in Stephenson v. Drever, the court did not imply special rules for closely held corporations concerning fiduciary duties. California law allows for restrictions on share transfers in closely held corporations, providing a means for majority shareholders to protect corporate interests. Consequently, the court ruled that a minority shareholder's rights, including the right to sell shares, are consistent with those in non-closely held corporations. Peter's proposed sale to Catamount would not breach any fiduciary obligations. The district court's summary judgment regarding Peter's fiduciary duty was reversed, the permanent injunction was vacated, and the case was remanded for further consideration of the remaining claims in Carl’s complaint. Each party was ordered to bear their own costs on appeal. The decision is not to be published or cited in other cases except as allowed by Ninth Circuit Rule 36-3.