Defendants and plaintiffs owned interests in Twin City Minerals (Twin City), a company whose only asset was a 50% ownership in Superior Minerals (Superior). Pursuant to a stock purchase agreement, defendants acquired plaintiffs’ interest in Twin City. Shortly thereafter, defendants purchased the remaining 50% interest in Superior from Aggregate Industries (Aggregate).  

Plaintiffs sued, alleging, among other things, that defendants breached their fiduciary duties by not disclosing to plaintiffs information material to the sale of their interest in Twin City prior to entering into the stock purchase agreement. The court (applying Minnesota law) ruled that shareholders of closely held corporations, such as Twin City, owe fiduciary duties to each other, including a duty to disclose material information. However, following a non-jury trial, the court rejected plaintiffs’ contention that defendants had breached their fiduciary duty to plaintiffs.

Plaintiffs claimed that defendants violated their fiduciary duty by failing to make multiple disclosures of material information. For example, plaintiffs claimed that defendants failed to disclose that Aggregate had decided not to provide further financial support to Superior, which would adversely impact Superior’s ability to complete a necessary debt refinancing. The court found that defendants were under no duty to disclose such information because defendants legitimately did not believe Aggregate’s statements. Similarly, the court held that defendants did not breach their fiduciary duties by failing to disclose that Aggregate had inquired, just weeks before execution of the stock purchase agreement, whether defendants were interested in buying Aggregate’s stake in Superior. After considering both the “magnitude” of the potential buyout and its “probability,” the court ruled that because the probability “of the buyout was remote and speculative at the time of execution of the stock purchase agreement,” the inquiry was not a material fact that required disclosure. As a final example, the court also rejected the plaintiffs’ contention that defendants’ failure to disclose that alternative financing not requiring any guarantees was available violated their fiduciary duty. Although such financing was obtained weeks after execution of the stock purchase agreement, the court found that no evidence had been produced at trial establishing that such financing was available prior to execution of the stock purchase agreement. (Dunning v. Bush, 2009 WL 1964994 (S.D. Iowa July 8, 2009))