## Facts

- Four minority shareholders of Tulare Savings & Loan Association sued the association’s controlling shareholder and related sellers, seeking relief on behalf of similarly situated minority holders.
- Edward F. Halbert and his wife owned 53% of the association’s 1,000 issued shares; Halbert also served as president, chair of the board, and manager.
- A prospective outside acquirer negotiated to purchase the Halberts’ controlling block at a substantial premium (approximately 2.5 times book value).
- Negotiations included steps tied to corporate control, including ending dividend payments and giving the buyer access to the association’s records.
- Minority shareholders were not informed of the negotiations during the process and were not offered an opportunity to participate on comparable terms.
- Plaintiffs alleged (1) the control premium was obtained in breach of fiduciary duty and should be held in constructive trust for minority shareholders, and (2) defendants’ conduct in arranging the sale diminished the value of minority shares, entitling them to damages.

## Issues

1. Whether a dominant shareholder who is also the corporation’s president and board chair owes fiduciary duties to minority shareholders in connection with selling a controlling block.
2. Whether such a fiduciary breaches duties by using corporate position and control to obtain a control premium not made available to minority shareholders.
3. Whether the trial court erred by submitting fiduciary status to the jury, instructing on burden of proof and a “special facts” doctrine, and limiting the damages claim.

## Decision

- The Court of Appeal reversed the judgment for defendants.
- The court held Halbert’s fiduciary status existed as a matter of law given his control and management roles; the jury should not have been asked to decide whether a fiduciary relationship existed.
- The court concluded Halbert violated fiduciary obligations by the manner of selling control for a premium while excluding minority shareholders from comparable benefit and by employing corporate powers and information in the transaction.
- The court directed equitable relief requiring the control premium to be shared on an equitable basis with all shareholders, implemented through a constructive trust or equivalent accounting.
- The case was remanded for proceedings consistent with these rulings, including correction of instructional errors.

## Legal Principles

- A controlling shareholder who also functions as a corporate officer/director in a closely held or small enterprise may owe fiduciary duties directly to minority shareholders.
- Even if a shareholder may generally sell stock at a negotiated price, a fiduciary may not use corporate control, corporate assets, or access to corporate information to obtain a personal control premium to the exclusion of minority shareholders.
- Where a fiduciary’s sale of control yields a premium attributable to misuse of fiduciary position, equity may impose a constructive trust or require an accounting so the premium is shared with minority shareholders.
- Fiduciary status arising from control combined with managerial authority is a legal determination for the court; the trier of fact addresses breach, causation, and remedy.
- Limiting fiduciary obligations to a narrow “special facts” disclosure theory is improper when the duty arises from ongoing control and managerial authority used to structure the challenged transaction.

## Conclusion

The court held that a dominant shareholder who also ran the association was a fiduciary to minority shareholders and breached that duty by arranging a control sale for a premium through use of corporate power while denying minority holders a comparable opportunity; equity required redistribution of the premium through constructive-trust-type relief.


Brown v. Halbert, 271 Cal. App. 2d 252, 76 Cal. Rptr. 781 (Ct. App. 1969)