Hsu

Employee shareholders of a closely held corporation transferred ownership of the shares of a former employee to themselves just before a merger that significantly increased the value of the corporate shares. The acquiring shareholders claimed they “purchased” the shares pursuant to an employee shareholder agreement entitling them to acquisition at book value. A jury found that any right to purchase shares at book value pursuant to the agreement was either held by the corporation alone, not the shareholders, or had elapsed before the alleged right was exercised.

The jury awarded the former employee $2.4 million in compensatory damages upon concluding that no contractual right to purchase the shares had existed, and that the transfer of shares occurred with nondisclosure of the pending merger. The jury returned a verdict finding breach of contract, intentional interference with prospective economic advantage, conversion, and violations of the California Corporations Code. Additionally, a bench trial following the jury’s verdict determined that the corporation’s management breached their fiduciary duty by withholding information from the former employee, who had remained a…