## Facts

- Rosen’s Diversified, Inc. (RDI) was a closely held Minnesota corporation engaged primarily in meat packing and related agricultural businesses.
- In 1986, RDI granted 12,000 shares (about 3%) to William B. McCallum, then CEO, as a reward and to encourage long-term loyalty; similar grants were made to other key employees.
- By 1991, RDI became dissatisfied with McCallum’s performance and terminated him from employment and management positions.
- After termination, McCallum asked RDI to purchase his shares for about $5 million; RDI offered $600,000.
- McCallum alleged that, as a minority owner in a close corporation, he reasonably expected continued employment and participation in management and that RDI’s termination and low purchase offer defeated those expectations.

## Issues

1. Whether the record contained sufficient evidence that RDI’s controlling owners engaged in “unfairly prejudicial” conduct toward McCallum as a minority shareholder under Minnesota close-corporation law.
2. Whether equitable relief in the form of a court-ordered buyout at “fair value” was available and warranted on the summary-judgment record.

## Decision

- The court reversed the grants of summary judgment for RDI.
- The court held that, viewing the evidence favorably to McCallum, a factfinder could conclude that RDI’s actions were unfairly prejudicial to a minority shareholder in a close corporation.
- The court remanded for a determination of the fair value of McCallum’s shares and entry of an appropriate buyout order.

## Legal Principles

- In a close corporation, “unfairly prejudicial” conduct toward a minority shareholder may be shown by substantial frustration of the shareholder’s objectively reasonable expectations formed when entering the venture.
- Reasonable expectations may include continued employment and participation in management when stock is granted to secure a key manager’s continuing involvement, and when there is no ready market to exit the investment.
- Terminating a minority shareholder’s employment and management role, combined with an offer to purchase the shareholder’s illiquid interest at an allegedly depressed price, can support an inference of a squeeze-out and create a triable issue of unfair prejudice.
- Whether expectations were reasonable, whether they were defeated without sufficient justification, and what constitutes fair value are fact-intensive matters generally unsuitable for resolution on summary judgment on an incomplete record.
- Minnesota close-corporation remedies for unfairly prejudicial conduct include a court-ordered purchase of the minority shareholder’s shares at fair value.

## Conclusion

The Eighth Circuit concluded that McCallum presented enough evidence to require factfinding on whether RDI unfairly prejudiced him by terminating his role and offering an inadequate repurchase price, and it remanded for valuation and a fair-value buyout under Minnesota close-corporation law.


McCallum v. Rosen's Diversified, Inc., 153 F.3d 701 (8th Cir. 1998)