## Facts

- Allen W. Stephenson worked for Drever Partners, Inc., a closely held corporation, and became its CFO; he owned about 11% of the company’s common stock.
- Maxwell Bruce Drever controlled about 89% of the stock and managed the corporation.
- Stephenson, Drever, and the corporation executed a stock purchase agreement under which the corporation sold Stephenson 500 shares at par value as compensation and an incentive to remain employed.
- The agreement required the corporation, upon termination of Stephenson’s employment “for any reason whatsoever,” to repurchase all of Stephenson’s shares within 90 days.
- After a specified date, the repurchase price was to be “fair market value,” to be set by agreement or, failing that, by an appraisal process culminating in a binding third appraisal.
- Stephenson’s employment ended effective July 1, 1994, and the parties agreed to value the shares as of May 1, 1994.
- A valuation dispute arose, and Stephenson alleged that after his employment ended but before the shares were repurchased, Drever used corporate control to pay himself excessive compensation and manipulate corporate accounts to depress the shares’ fair market value.
- Stephenson sued derivatively for breach of fiduciary duty, asserting he remained a shareholder until actual repurchase; defendants contended his shareholder rights ended at termination or the agreed valuation date.

## Issues

1. Whether a buy-sell agreement obligating a corporation to repurchase a terminated employee-shareholder’s stock at “fair market value,” but silent on interim rights, impliedly terminates shareholder status and related fiduciary protections upon termination or as of a valuation date rather than upon actual repurchase.

## Decision

- The California Supreme Court reversed the judgment affirming dismissal after demurrer.
- The court held the agreement did not imply an intent to terminate Stephenson’s shareholder rights before the corporation actually repurchased his shares.
- Stephenson remained a shareholder, with associated statutory rights and fiduciary protections, during the post-termination period pending valuation and closing.
- The case was remanded for the Court of Appeal to consider an alternative ground for demurrer not previously reached.

## Legal Principles

- A buy-sell agreement requiring a future repurchase is generally executory; absent clear contractual language, it does not transfer title or end shareholder status before performance.
- Contractual silence is insufficient to infer that a shareholder waived statutory shareholder rights (including the ability to sue derivatively) during the period before an agreed repurchase is consummated.
- Majority shareholders and directors in a closely held corporation continue to owe fiduciary duties to a minority shareholder until the minority shareholder’s shares are actually repurchased, unless an explicit and enforceable agreement provides otherwise.
- Courts will not infer an early forfeiture of minority shareholder protections from a valuation date or pricing mechanism that addresses price but not the timing of loss of shareholder rights.

## Conclusion

Because the buy-sell agreement did not expressly cut off shareholder rights before closing, the minority shareholder retained shareholder status and could pursue fiduciary-duty claims for conduct occurring between employment termination and the corporation’s actual repurchase of the shares.


Stephenson v. Drever, 947 P.2d 1301 (Cal. 1997)