## Facts

- Minority shareholders of a privately held national bank sued Richard Shore Smith, the bank’s former president/director and a controlling shareholder (with family and directors owning about 70%).
- Transamerica Corporation offered to buy all outstanding bank stock through Smith.
- Smith refused to handle minority shares and told Transamerica it would have to deal directly with minority shareholders if it wanted their stock.
- Smith expressed that minority shareholders should receive more than book value and suggested at least $220 per share.
- The bank stock’s book value was about $200 per share; some prior sales had been at $160–$170 per share.
- Transamerica separately offered minority shareholders $220 per share; at least some were told that Smith and his associates would receive more than $220 for their shares.
- Minority shareholders sold to Transamerica at $220 per share without asking Smith or his associates what price they were receiving.
- Smith and his family sold their controlling block to Transamerica at a substantially higher price.
- Minority shareholders alleged fraud and breach of fiduciary duty based on Smith’s failure to disclose the higher price he received.

## Issues

1. Whether a controlling shareholder who is also an officer/director owes minority shareholders a fiduciary duty to disclose the higher price he will receive for his own shares when a third-party buyer negotiates directly with the minority.
2. Whether nondisclosure of the controlling shareholder’s sale price, without solicitation or participation in the minority’s sale, constitutes fraud or breach of fiduciary duty.

## Decision

- The Oregon Supreme Court affirmed judgment for Smith after a consolidated bench trial.
- The court found Smith did not participate in, solicit, or induce the minority shareholders’ sales and had “nothing whatsoever to do” with their transactions.
- Because Transamerica negotiated directly with the minority and informed at least some that Smith would receive more, plaintiffs failed to prove fraud or actionable nondisclosure.
- On these facts, Smith had no duty to disclose the specific terms of his own stock sale to minority shareholders.

## Legal Principles

- A controlling shareholder’s fiduciary obligations arising from corporate control do not automatically require disclosure of the controlling shareholder’s personal sale price to minority shareholders when the buyer separately negotiates with the minority.
- Nondisclosure by a controlling shareholder is not actionable fraud absent participation in the minority’s transaction, misleading statements, solicitation, or a relationship placing the controlling shareholder in a negotiating/advising role for the minority.
- When minority shareholders know (or are told by the purchaser) that the controlling block will receive more and nevertheless sell without inquiry, claims based on reliance and concealment are weakened.

## Conclusion

The court held that a controlling shareholder/officer who sells his own shares at a premium is not liable to minority shareholders for failing to disclose his exact sale price where he does not handle or influence the minority’s sale and the purchaser deals directly with the minority, including informing them that the controller will receive more.


Tryon v. Smith, 229 P.2d 251 (Or. 1951)