## Facts

- Thomas Berreman worked for West Publishing Company for about 25 years and acquired 1,600 shares through a management stock-option program.
- His shares were subject to a purchase-sale-resale agreement giving West an option to repurchase his shares at book value upon events including termination of employment; West historically exercised this option.
- In April 1995, Berreman told West’s CEO he intended to retire effective June 1, 1995.
- In May 1995, while Berreman remained employed, three West executives met with an investment bank regarding “future financial options,” including a possible sale, and the board authorized the bank to explore options.
- Upon Berreman’s retirement (May 31/June 1, 1995), West redeemed his shares at book value, $2,088 per share (about $2.8 million total), with his authorization.
- In August 1995, West publicly announced it had engaged investment bankers and was considering options including an acquisition.
- In February 1996, West entered a merger agreement valuing shares at $10,445 per share.
- Berreman claimed that, had he known of the pre-retirement exploratory steps toward a possible sale, he would have delayed retirement and/or kept his shares.

## Issues

1. Whether a closely held corporation and its directors breached fiduciary duties by not disclosing preliminary, exploratory sale-related discussions before redeeming a departing employee-shareholder’s stock at book value under a repurchase option.
2. Whether nondisclosure of those discussions constituted “unfairly prejudicial” conduct under Minn. Stat. § 302A.751, subd. 1(b)(3), by frustrating the shareholder’s reasonable expectations.
3. Whether the corporation committed fraud by nondisclosure when it remained silent about the exploratory discussions during the redemption transaction.

## Decision

- The Minnesota Court of Appeals affirmed summary judgment for West on all claims.
- The court held West had no duty to disclose the early, tentative sale exploration because it was not material information at the time of redemption.
- The court held West’s conduct was not “unfairly prejudicial” under Minn. Stat. § 302A.751 because it did not frustrate Berreman’s reasonable expectations under the parties’ agreement.
- The court held West’s silence was not fraud because fraud by nondisclosure requires a duty to disclose and concealment of a material fact, which were not shown.

## Legal Principles

- Shareholders in a closely held corporation owe one another fiduciary duties, including duties of honest, fair, and reasonable conduct, but nondisclosure liability depends on whether the withheld information is material.
- Preliminary, exploratory discussions about a potential sale or merger—without negotiations with a specific buyer, no agreed price, and no sufficiently probable transaction—may be too remote to be material and therefore need not be disclosed in connection with a routine, contract-based stock redemption.
- “Unfairly prejudicial” conduct under Minn. Stat. § 302A.751, subd. 1(b)(3), includes conduct that frustrates the reasonable expectations of shareholders in their shareholder, employee, officer, or director capacities in a nonpublic/closely held corporation.
- A shareholder’s reasonable expectations are evaluated in light of the parties’ agreements and the triggering terms for redemption; enforcing a bargained-for book-value repurchase right, without more, is not unfairly prejudicial.
- Fraud by nondisclosure requires a duty to disclose and concealment of a material fact; absent materiality and a disclosure duty, silence regarding tentative corporate possibilities does not constitute fraud.

## Conclusion

The court held that West’s pre-retirement, exploratory efforts to assess a possible sale were not material facts requiring disclosure, so redeeming Berreman’s shares at book value under the repurchase agreement supported no claim for breach of fiduciary duty, unfair prejudice under Minn. Stat. § 302A.751, or fraud by nondisclosure.


Berreman v. West Publ’g Co., 615 N.W.2d 362 (Minn. Ct. App. 2000)