## Facts

- United Savings and Loan Association of California (the Association) issued stock in 1956; plaintiff June K. Jones became a minority shareholder (25 shares).
- The Association retained substantial earnings in reserves, increasing book value, but the shares were thinly traded and lacked an active market.
- In 1959, controlling shareholders organized United Financial Corporation of California, a Delaware holding company.
- The controlling shareholders exchanged their Association shares (and certain businesses) for United Financial shares; United Financial ultimately held about 85–87% of the Association’s stock.
- United Financial shares had an active public market; Association shares held by the minority did not.
- Minority shareholders were not allowed to exchange Association shares for United Financial shares and could acquire United Financial shares only on the same terms as the general public.
- Jones alleged the holding-company structure let the controllers convert their control block into marketable securities and obtain special benefits while “freezing” the minority into illiquid Association shares and manipulating dividend/asset policies to the minority’s detriment.

## Issues

1. Whether controlling shareholders breach fiduciary duties by using control to create marketability and value for themselves through a holding-company plan while excluding minority shareholders and harming minority interests.
2. Whether claims for diminished value and lost equal opportunity suffered by minority shareholders are direct (individual/class) claims or derivative claims requiring compliance with derivative-suit prerequisites.

## Decision

- The California Supreme Court reversed the judgment sustaining demurrers without leave to amend and directed the trial court to overrule the demurrer.
- The complaint and stipulated facts sufficiently alleged that defendants used control to obtain a non-proportionate benefit and caused detriment to minority shareholders.
- The action was properly pled as an individual/class action because the alleged injury ran to the minority shareholders, not to the corporation as an entity.
- Defendants’ protective cross-appeal was dismissed.

## Legal Principles

- Controlling shareholders owe minority shareholders a fiduciary duty of good faith and fairness in transactions where control is material.
- Majority shareholders may not use corporate control to secure benefits for themselves alone or to the minority’s detriment.
- Any use of control must benefit shareholders proportionately and must not conflict with proper conduct of the corporation’s business.
- A shareholder may bring a direct (including class-type) action for injuries inflicted directly on shareholders, even when the injury is shared among a group; a “separate and distinct” injury unique to one shareholder is not required.
- A claim is derivative only when it seeks recovery for injury to the corporation; diminution in share value caused by direct shareholder-level unfairness may be pursued directly.

## Conclusion

The court held that minority shareholders stated a direct claim where controlling shareholders allegedly used their power to create a marketable holding-company interest for themselves while excluding the minority and impairing the minority’s liquidity and value, violating duties of fairness and proportional treatment.


Jones v. H.F. Ahmanson & Co., 1 Cal. 3d 93 (Cal. 1969)