Chalk v. Chalk

Summary

This order and opinion addresses cross-motions for summary judgment in a dispute involving the ownership and purchase of shares in a closely held corporation. The claims concern a shareholders’ agreement, the termination and removal of a shareholder-director, declaratory relief, employment discrimination, breach of fiduciary duty, and wrongful discharge. The court grants and denies the parties’ motions in part.

Holdings

1. A shareholder-director who exercised equal voting power, participated in the company's policy-setting body, was not supervised, reported to no one, and shared in profits was not an employee under the Clackamas common-law control analysis. Chalk therefore was not protected by the ADEA, Title VII, or the North Carolina Equal Employment Practices Act.
2. Minority shareholders who join together to outvote another shareholder do not ordinarily owe that shareholder a fiduciary duty. Such a duty may arise only in rare circumstances showing unusual indicia of shared interests and collective action elevated into domination and influence over the outvoted shareholder. The evidence here did not establish such a control group or domination and influence.
3. Section 1(b) of the 2008 shareholders' agreement gave Chalk's children two years from Chalk's cessation of employment to become employees and become eligible to receive or purchase his shares. The remaining shareholders could not purchase the shares before that period expired merely by resolving not to employ the children.
4. The shareholders' failure to wait the required two years was a breach but was not a material breach that excused Chalk and the other shareholders from their remaining obligations under the shareholders' agreement.
5. The premature attempt to exercise the purchase right also supported Chalk's claim for breach of the implied covenant of good faith and fair dealing, and summary judgment was proper in his favor on that claim to the extent it was based on the same conduct.

Questions Presented

1. Whether Chalk was an employee protected by the ADEA, Title VII, and North Carolina's public-policy wrongful-discharge doctrine despite being a shareholder, director, and principal.
2. Whether the remaining shareholders formed a controlling group that owed Chalk fiduciary duties as a minority shareholder.
3. Whether the remaining shareholders breached the 2008 shareholders' agreement by resolving to purchase Chalk's shares before expiration of the two-year period for his children to become employees.
4. Whether that breach was material and excused Chalk from further obligations under the shareholders' agreement.
5. Whether genuine issues of material fact precluded summary judgment on the proposed transfer to Chalk's son, other alleged contractual breaches, valuation, and the remaining declaratory-relief claims.

Disposition

other