In corporate law, oppressive behavior refers significantly to the minority shareholders’ rights and protections. This paper applies the IRAC method to an example fact pattern in “Legal Research, Analysis, and Writing” by William H. Putman and Jennifer R. Albright (2018). Bearing this text in mind as the primary consideration of what legal principles and definitions are about oppressive conduct, the following essay will consider the scenario given and base its determinations on this text and others to determine whether, under existing legal standards, actions of the majority shareholders do amount to oppressive conduct.
The central legal question arising from this case is whether majority shareholders Mary and Linda conduct their oppressive behavior through the hypothetical fact pattern on pages 329–330 from Putman and Albright’s textbook. Had Mary and Linda acted to derogate the rights and interests of the minority shareholder, Karen, such that the behavior amounts to oppressive conduct?
Putman and Albright (2018) explain “oppressive conduct” as a visible departure from the standards of fair dealing and a violation of fair play based on which any shareholder is entitled to rely (p. 329). The textbook explains that the common factors that allow the courts to find oppressive conduct include the termination of employment, the reduction of remuneration, the refusal to allow access to information, and the refusal to take part in the management of the company, or indeed even access to its decision-making processes, and the withholding of dividends (Putman & Albright, 2018).
It gives a framework that majority shareholders’ actions amount to oppression. Putman and Albright (2018) predominantly focus on guiding through the legal standards, fair dealing, and fair play within the matrix of corporate relationships, with particular reference to guarding the rights and protecting the interests of the minority shareholders.
In the hypothetical put forward by Putman and Albright (2018), Mary and Linda, both majority shareholders of a corporation, have conducted themselves throughout in a manner tantamount to oppressive acts. First, they just fired her from the company. This effectively discharges her from her duties at her position and denies her an opportunity to continue serving the company in any manner. Second, removing Karen from the board of directors meant that Mary and Linda further excluded her from the decision-making and running of the corporation (Putman & Albright, 2018).
Mary and Linda also stopped sharing financial information with Karen, which was critical concerning performance and the right to save their interests as shareholders (Putman & Albright, 2018). They began to pay relatively high salaries, which could be a case of misappropriating corporate funds for their gain (Putman & Albright, 2018). The last straw is that they stopped paying dividends, thereby withholding Karen and other shareholders’ financial returns (Putman & Albright, 2018).
Under the legal rules of analysis of Mary and Linda’s actions, some of the factors of oppressive conduct could apply (Putman & Albright, 2018). “The termination of Karen, removal from the board of directors, and the refusal to provide financial information are all criteria exactly as the textbook outlines them” (Putman & Albright, 2018). These acts deprive Karen of her rights and privileges as a shareholder, which generally blocks her from administration and superintendence of the corporation.
Exorbitant salaries were being paid to Mary and Linda, and dividends not being paid were deviations from standards of fair dealing and violations of the principle of fair play (Putman & Albright, 2018). In doing so, they placed their financial interest ahead of that of the minority shareholder and the company. Thus, Mary and Linda breached Karen’sen’s trust and reliably when she invested her money.
Putman and Albright (2018) crafted this hypothetical fact pattern in their article, shockingly similar to real, live cases of oppressive conduct. For example, in Pointer v. Castellani (2009), the Massachusetts Supreme Judicial Court found that majority shareholders in a closely held corporation were oppressive when they terminated a minority shareholder’s employment, restricted him relative to corporate records, and failed to declare dividends. Similarly, in the case of Gimpel v. Bolstein (1984), the court held that the majority shareholders of a closely held corporation indulge in oppressive conduct since they pay themselves exorbitant salaries and bonuses while denying the minority shareholders any financial gains.
The fact is clear that the factors, as pointed out by Putman and Albright (2018), are well recognized in the court, particularly about oppressive conduct. This leads to an easy conclusion in comparison: After having drawn such parallels between the fact pattern and the actual cases described above, one would say that one of the paramount reasons for using legal reasoning is to protect the rights of minority shareholders against the actions of majority shareholders.
From a summary view, applying the IRAC method with the legal principles provided by the Putman and Albright textbook to this hypothetical fact pattern, it would be reasonably clear that for Mary and Linda, their actions, being majority shareholders, are likely to amount to oppressive conduct. All these included the firing of Karen from employment, cessation of being on the board of directors, denial of financial information, payment of higher-than-stipulated salaries, and retention of dividends—all these were in a manner consistent with multiple factors that the court would consider when identifying if oppressive conduct has occurred (Putman & Albright, 2018).
This further shows their conduct, which is a departure from the standard dealing and fair play in which a minority shareholder, in this case, Karen, can be said to be entitled to rely upon to invest in a company (Putman & Albright, 2018). The following case facts are purely hypothetical. The cases to which it refers in this essay serve to underscore the importance of applying legal reasoning to assure protection for the rights and interests of minority shareholders in corporate settings.
However, This paper will lay the legal principles provided by Putman and Albright (2018) in an IRAC method to present a case study of how legal professionals might systematically consider the behavior of majority shareholders in their quest to determine concrete oppressive conduct under current legal standards. This legal reasoning, applied to reality, is individual-member-specific and of the entire group and serves to ensure protection for the rights of all shareholders and standards of fair dealing and fair play in relationships of a corporate nature.
References
Gimpel v. Bolstein, 477 N.Y.S.2d 1014 (N.Y. App. Div. 1984).
Pointer v. Castellani, 918 N.E.2d 805 (Mass. 2009).
Putman, W. H., & Albright, J. R. (Year). Legal Research, Analysis, and Writing (4th ed., pp. 329–330). Retrieved from http://repository.vnu.edu.vn/handle/VNU_123/75916
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