## Facts

- Western Securities, a Delaware corporation, owned as its sole asset all stock of Modern Equipment Company, Inc., a Nebraska corporation; both operated principally in Omaha, Nebraska.
- Richard W. “Dick” Johnson organized Western Securities and controlled it and Modern Equipment as sole shareholder/director before transferring Western Securities shares in 1998 to his five children.
- Richard W. Johnson, Jr. received the largest share block; Michael R. Johnson received the next largest and worked for Modern Equipment as an officer.
- After Dick’s death in 2001, Richard, through his shares and authority as personal representative of the estate, effectively controlled Western Securities and thus Modern Equipment.
- Michael alleged that Richard took corporate actions without notice, failed to hold shareholder meetings for two years, and caused declining profits while increasing his own compensation.
- Michael alleged he was terminated from his employment at Modern Equipment in 2002 and that Richard used estate-held shares to ratify his actions.
- Michael sued in Nebraska seeking an accounting, appointment of a receiver to take control and sell corporate assets, distribution of proceeds, and alter-ego relief between Western Securities and Modern Equipment.
- Defendants moved to dismiss for failure to state a claim; the district court applied Delaware law and dismissed.

## Issues

1. Whether Nebraska or Delaware substantive law governs claims alleging oppression of a minority shareholder of a Delaware corporation whose sole asset is stock in a Nebraska corporation.
2. Under the governing substantive law, whether the complaint stated a claim supporting the requested equitable remedies (including receivership and forced sale).

## Decision

- The Nebraska Supreme Court affirmed the Rule 12(b)(6) dismissal.
- It held Delaware law governed because the claims concerned internal affairs of a Delaware corporation.
- Applying Delaware law, the court concluded the allegations did not support the extraordinary remedies sought and therefore failed to state a claim for relief.

## Legal Principles

- Under the internal affairs doctrine, matters of corporate governance and shareholder rights are governed by the law of the state of incorporation.
- On a motion to dismiss, courts accept well-pleaded facts as true and draw reasonable inferences for the nonmovant; dismissal is proper when the complaint shows an insuperable bar to relief under the controlling law.
- Delaware law does not provide a broad, free-standing minority-shareholder oppression remedy permitting receivership or forced sale absent a recognized doctrinal or statutory basis and sufficiently severe circumstances.
- Alter-ego/veil-piercing allegations do not, by themselves, displace the internal affairs doctrine when the relief sought turns on governance of the corporation’s internal affairs.

## Conclusion

The court applied the internal affairs doctrine to hold that Delaware law controlled a minority shareholder’s oppression-based claims against a Delaware holding company, and it affirmed dismissal because the pleaded facts did not support the drastic equitable remedies requested under Delaware law.


Johnson v. Johnson, 272 Neb. 263, 720 N.W.2d 20 (Neb. 2006)