Directors, officers, and controlling shareholders in Minnesota corporations have legal duties to the corporation and its shareholders. If they violate those duties, shareholders can file breach of fiduciary duty claims. If you need to evaluate your position in potential litigation, it can be helpful to understand how these duties work.
What Constitutes Fiduciary Duties in Minnesota?
Corporate leaders have several fiduciary duties under Minnesota law, including the duties of loyalty, care, and good faith/fair dealing. These duties become particularly important in closely held companies – corporations with a limited number of shareholders. The duty of loyalty requires a corporate fiduciary to act in the corporation’s best interests rather than their own. This means they must refrain from engaging in self-dealing, acting with a conflict of interest, or usurping the corporation’s business opportunities. The duty of care requires fiduciaries to act diligently and to make informed decisions, including seeking professional counsel before undertaking action. The duty of good faith requires a corporate leader to act honestly and fairly towards the corporation and its shareholders.
Minnesota law allows a corporation’s articles of incorporation to limit or eliminate a director’s personal liability for monetary damages arising from breaches of fiduciary duties. However, this rule does not apply to breaches of the duty of loyalty, intentional misconduct, knowing legal violations, or the derivation of improper personal benefits.
Common Breaches That Lead to Litigation
Examples of breaches of fiduciary duties that may lead to corporate litigation in Minnesota include:
- Self-dealing, such as causing the corporation to enter into transactions with a fiduciary’s other business
- Diverting corporate opportunities, such as letting a fiduciary’s other business secure a deal offered to the corporation
- Misappropriation of corporate assets, such as using corporate funds to pay personal expenses
- Oppressive conduct, such as freezing minority shareholders out of decision-making or trying to buy out minority shareholders at far below market value for their shares
- Careless or reckless decision-making, such as undertaking significant action without seeking legal or financial counsel
- Making decisions on behalf of the corporation while having a conflict of interest, such as deciding to award a contract to a business owned by the fiduciary’s family member
How Minnesota Courts Evaluate Fiduciary Claims
In corporate litigation, Minnesota courts may view fiduciary claims through the lens of the business judgment rule, under which courts defer to decisions made by corporate leaders in good faith. However, a shareholder may overcome the business judgment rule by showing that a director or officer breached their fiduciary duties. Under certain circumstances, courts may shift the burden of proof to a corporate fiduciary, requiring them to prove the fairness of their actions despite a conflict of interest. Courts may also consider whether independent, disinterested directors or shareholders made an informed decision to ratify a fiduciary’s actions.
Remedies Available for Fiduciary Duty Claims
Shareholders may file direct or derivative actions to seek remedies for losses suffered by the corporation or shareholders due to breaches of fiduciary duties by directors, officers, or controlling shareholders. Remedies potentially available in corporate litigation in Minnesota include:
- Financial compensation for losses caused by the breach
- Injunctive relief, which requires fiduciaries to take specific actions or refrain from taking certain actions
- Court-ordered accounting
- Removal of directors or officers
- Buyout/appraisal of minority shareholders’ interests
- Dissolution of the corporation
Strategies for Mitigating Fiduciary Duty Risks
Corporate leaders can reduce the risks of breaching fiduciary duties through best practices such as:
- Adopting governance policies or conflict-of-interest procedures with the advice of a corporate law firm
- Providing training to officers and directors
- Conducting periodic compliance reviews
- Maintaining transparency with shareholders, especially in closely held corporations
Contact a Minneapolis Lawyer Today for Experienced Counsel and Advocacy
Corporate shareholders can bring fiduciary duty claims against company officers, directors, or controlling shareholders who violate legal obligations owed to the corporation or its shareholders. To learn more about your rights and options in corporate litigation involving alleged breaches of fiduciary duty, contact Christensen Law PLLC for a confidential consultation with an attorney from our Minneapolis office.
