In Oregon – a state rife with startups and small businesses – many companies are closely held between few shareholders. In many of these companies, shareholders might also be employees. If the majority shareholder ends the employment of a minority shareholder, does the minority shareholder have to sell their portion of the business?
In the case of Graydog v. Giller, the answer is no. But it took a long time to get there.
Specifics of the case
David Giller and Douglas Westervelt Internet in 1997 with Westervelt as majority owner. Both served as employees.
The company created bylaws in 2004 and backdated them to 1997. One of the stipulations states that if one of the shareholders ends his employment with Graydog, he must offer his shares for sale to the company or other shareholders.
In 2013, Westervelt called a meeting of the board of directors and elected his wife to the board. The pair then moved to fire Giller and sued to compel him to sell his shares. A flurry of countersuits followed.
At issue is Oregon’s laws protecting minority shareholders. The law provides remedies for minority shareholders if the majority shareholder is acting in an oppressive manner. Also, in an attempt to encourage shareholders to resolve disputes outside the courtroom, the law stipulates that if one shareholder sues, other shareholders can buy their shares.
In addition to suing to attain Giller’s shares, Westervelt sought to exercise his rights under that law, citing Giller’s countersuits.
Verdict, appeal, high court decision
In 2013, a judge disagreed, stating that countersuits were clearly not what the state legislature had in mind when it made the lawsuit stipulation. The judge denied Westervelt’s writ of mandamus and the cross-motion for summary judgement. In 2014, the state Supreme Court denied a petition to consider the case.
Westervelt appealed, and in 2016 the Court of Appeals reversed the trial court’s decision. Even if Giller’s interests as a minority shareholder are covered by state law, Giller clearly filed a lawsuit, the court reasoned, thereby allowing Westervelt and Graydog to buy his shares.
The state Supreme Court took up the case and in 2017 overturned the appeals court decision. Giller deserves protection as a minority owner under state law, and since the lawsuits were initiated by Westervelt and Graydog, Giller isn’t forced to sell his shares.
From March 2013 to November 2017, Westervelt and Giller played out their ownership struggle in the courts. Because of their actions, we have a clearer understanding of minority ownership rights.