Legal Memorandum: Breach of a Shareholder Agreement

Issue: Under what circumstances does a breach of a shareholder agreement constitute a breach of fiduciary duty?

See Goode v. Ryan, 489 N.E.2d 1001 (Mass. 1986) and Bershad v. Curtis-Wright Corp., 535 A.2d 840 (Del. Super. Ct. 1987),

Z. Cavitch, 9 Business Organizations, §§ 120.03-.06 (2011) (discussing close corporation shareholders’ liability and citing cases);

F. H. O’Neal, R. Thompson, B. Thompson, 2 O’Neal and Thompson’s Close Corporations and LLCs, §§ 9:19-:24 (3d ed. 2008) (discussing shareholders’ fiduciary duty and citing cases);

W.M. Fletcher, 12B Fletcher Cyclopedia of the Law of Corporations, §§ 5811-5812 (2009) (discussing shareholders’ fiduciary obligations and citing cases);

M. Rosenhouse, Majority’s Fiduciary Obligation to Minority Shareholder of Close Corporation—Breach and Remedy, 39 A.L.R.6th 1 (2008 & 2011 Supp.) (collecting cases);

R. Art, Shareholder Rights and Remedies in Close Corporations: Oppression, Fiduciary Duties and Reasonable Expectations, 28 J. Corp. L. 371 (2002);

M. Siegel, Fiduciary Duty Myths in Close Corporate Law, 29 Del. J. Corp. L. 377 (2004); and

J. Tanguay, Minority Shareholders and Direct Suits in Closely held Corporations, 5 Pierce L. Rev. 469 (2007).

The following cases hold that a breach of a shareholder agreement may also constitute a breach of fiduciary duty under various circumstances:

Walta v. Gallegos Law Firm, P.C., 40 P.3d 449, 459 (N.M. Ct. App. 2001) (recognizing that a breach of an agreement between shareholders may also constitute a breach of a fiduciary obligation and stating that “not every noncompliance with a shareholder agreement is necessarily a breach of fiduciary duty—but in appropriate circumstances may be [and], […]