FILED: July 12, 2000

TERRY J. COOKE,

Respondent,

v.

FRESH EXPRESS FOODS CORPORATION, INC.,
an Oregon corporation;
ALLEN JOHN QUICKER;
and JONI SUE QUICKER,

Appellants.

Appeal from Circuit Court, Josephine County.

Allan H. Coon, Judge.

Argued and submitted June 4, 1999.

Robert E. Bluth argued the cause for appellants. With him on the briefs was Richard Billin.

Walter L. Cauble argued the cause for respondent. With him on the brief were Christopher L. Cauble and Schultz, Salisbury, Cauble & Dole.

Before Edmonds, Presiding Judge, and Armstrong and Kistler, Judges.

ARMSTRONG, J.

Affirmed.

ARMSTRONG, J.

Defendants Allen John Quicker (John) and Joni Quicker (Joni) (defendants) appeal from a judgment in which the trial court found that they had acted oppressively toward plaintiff in the management and control of defendant Fresh Express Foods Corporation, Inc. (Fresh Express). (1) As a remedy, the court ordered defendants to purchase plaintiff's interest in Fresh Express at a price that the court set. Defendants raise issues concerning both the finding of oppressive conduct and the determination of the price for plaintiff's shares. On de novo review, we affirm.

We state the facts based on our review of the evidence in the record, aided by the trial court's findings, which reflect its ability to see the witnesses and evaluate their testimony. (2) Most of the facts are undisputed. John is Joni's father; plaintiff is her former husband. In the early 1980s John and Joni began a business of distributing fresh produce in the Grants Pass area. Plaintiff was originally employed elsewhere and only assisted in the business, but within a short time he left his other employment and began working with John and Joni full time. The business was originally a partnership, with John having a half interest and Joni and plaintiff together having the other half interest.

The business grew throughout the 1980s. In June 1990 John, Joni, and plaintiff incorporated it as Fresh Express. John received 50 percent of the stock, and Joni and plaintiff each received 25 percent. (3) John was the president of the corporation, Joni was the vice-president, and plaintiff was the secretary and treasurer. They constituted the three members of the board of directors, and each was also a Fresh Express employee. After the incorporation, the parties continued to function informally, at times discussing business decisions but not holding meetings of either the stockholders or the directors.

Fresh Express was the primary source of income for all three parties. Part of that income came from their salaries, but substantial additional amounts came as loans that the corporation made to them for various purposes, including paying their individual taxes on their portions of the corporation's retained earnings. Because Fresh Express elected to be a subchapter S corporation, which for tax purposes does not pay taxes itself but passes its income through to its shareholders, plaintiff and defendants were liable for taxes on those retained earnings whether or not the corporation actually distributed them. Without the loans, they would have had no corporate money to pay the taxes on that corporate income.

Joni and plaintiff separated at about the time of the incorporation. Despite the separation, the parties continued to cooperate in the business for a time, including after Joni began another relationship. That plaintiff and Joni worked in separate offices helped reduce the tension between them. However, that tension increased significantly beginning in June 1993 when, after starting a relationship with a Fresh Express employee, plaintiff filed for dissolution of the marriage. At that point, John and Joni began seeing a lawyer. In addition, John, without telling plaintiff, modified the corporate bank account to require two signatures on all checks. John and Joni each had a rubber stamp with the other's signature; plaintiff had no rubber stamp. The events that followed are the foundation for plaintiff's claim.

One of plaintiff's primary responsibilities was managing the company's delivery system, which included supervising the operation of its trucks. In December 1993, while plaintiff was on vacation, John discovered a notice on plaintiff's desk from the Public Utilities Commission (PUC) concerning a recent audit of the company's trucks. According to John, plaintiff had told him that the company passed the audit with flying colors, but the PUC notice showed deficiencies that resulted in a fine of $6,000 and additional penalties of $4,000. Plaintiff had not paid those amounts, and that failure threatened Fresh Express with the loss of its PUC authority to operate. Such a loss, John testified, would have been devastating to the company. According to plaintiff, the problem was simply one of paperwork and the cost to the company was only $1,500. There is no documentary evidence in the record concerning this issue.

When plaintiff returned from vacation, John met with him and, acting as president of the company, terminated his employment. In doing so, John told plaintiff that he had checked the issue out legally and that he had the authority to terminate him. John gave plaintiff a written notice of termination that included the statement that "Fresh Express Foods Corporation has suffered monetary loss associated with [plaintiff's] position and this constitutes a Breach of Fiduciary Responsibility to the Corporation." It did not refer to a threatened loss of PUC operating authority. At trial, John testified that he did not know the definition of a fiduciary responsibility. The trial court found that John would not have terminated Joni for a comparable error. Rather, it concluded, the purpose for firing plaintiff was to exclude him from participating in the corporate business or receiving any benefits from the corporation. The court found that the reason for the exclusion was the breakdown of the marriage and the animosities that ensued thereafter.

Defendants correctly point out that there is no evidence that expressly supports the trial court's finding that John would not have fired Joni for a comparable error; the precise subject simply did not arise during the trial. However, in their testimony John and plaintiff disagreed concerning the nature and seriousness of plaintiff's error and its potential effect on the company. We treat the trial court's comment as, in part, reflecting its evaluation of that testimony and its conclusion that the effect of the error was closer to plaintiff's description than to John's. In addition, the written notice that John gave plaintiff, including its use of a crucial phase that John could not define, and the events that followed support the trial court's conclusion that the purpose of the termination was to exclude plaintiff from participation in the business and from receiving any of its benefits. We agree with that conclusion.

After the termination, plaintiff received his unpaid wages and two weeks' severance pay. Except for the paper transaction that we describe below, plaintiff has received no money or other benefits from Fresh Express since his termination. Before the termination, the corporation distributed money to all of its shareholders that it treated as shareholder loans. (4) It continued to make those distributions to John and Joni, but it did not make them to plaintiff after his termination. Although plaintiff remained a corporate officer and director for almost two years, he was never again informed of or consulted about corporate business.

The court entered a judgment dissolving plaintiff's and Joni's marriage in August 1994. In doing so, it awarded Joni an equalizing judgment of approximately $27,000, plus post-judgment interest. Sometime in 1995, Joni's attorney conducted a judgment debtor examination of plaintiff, as a result of which Joni apparently concluded that plaintiff's stock in Fresh Express was his only available asset. After she indicated that she intended to execute against that stock, plaintiff filed this action on October 13, seeking among other things to enjoin her from doing so. Joni apparently saw the fact that the corporation had never issued stock certificates as an obstacle to an execution, as there was nothing tangible that the sheriff could seize. Because plaintiff was the corporate secretary, his cooperation was necessary for the corporation to issue certificates. Apparently in order to overcome that obstacle, John called a directors' meeting for November 2, 1995, for the purpose of electing officers. (5) At the meeting John and Joni first reelected John as president and Joni as vice-president. They then also elected Joni as secretary and treasurer. (6) Plaintiff abstained from all three votes.

The meeting concluded with John stating, "As Secretary Treasurer, Joni, you have to get stock issued in the reasonably near future. I suggest that you do that as soon as it is reasonably convenient to do that. That is all for this meeting, I call the meeting adjourned." A few days later Joni issued a stock certificate to plaintiff. (7) Instead of sending the certificate to plaintiff, she immediately delivered it to the sheriff under a writ of garnishment on her judgment against plaintiff. In response, plaintiff obtained a temporary restraining order against proceeding with a sheriff's sale of the certificate. He was ultimately able to redeem the certificate, apparently before the hearing on his motion for a preliminary injunction, by borrowing money from his parents to pay the judgment.

In September 1996, defendants called a special shareholders' meeting, (8) at which the only order of business was to reduce the number of directors to two, over plaintiff's dissenting vote, and to elect John and Joni to those positions. During an informal discussion either before or immediately after that meeting, plaintiff commented to John's attorney that the tax notice that he had received indicated that the company owed him a considerable amount of money and asked if the company intended to pay it to him. After consulting with John, the attorney responded that John had decided not to make any more distributions to shareholders at that time.

After the shareholders' meeting ended and plaintiff left the room at their request, John and Joni held a directors' meeting. (9) The first order of business was to remove plaintiff "from all of his positions as an officer, employee and agent of the corporation." John and Joni then agreed, despite the attorney's statement to plaintiff, to distribute the corporation's entire accumulated adjustment account (10) to the shareholders by using it to reduce the outstanding shareholder loans. After the distribution, John and plaintiff continued to have loan balances, while Joni had a small surplus, which she did not withdraw. Finally, they agreed to purchase automobiles for John and Joni, (11) to increase John's salary from $54,000 per year to $120,000, effective at the beginning of that year, and to give John additional compensation of up to $5,000 for his legal fees in this action.

Plaintiff argues that these actions together constituted a course of oppressive conduct and that defendants breached their fiduciary duties to him by freezing him out of all participation in the corporation and depriving him of all of the benefits of being a stockholder. ORS 60.661(2)(b) provides that a court may dissolve a corporation when the directors or those in control "have acted, are acting or will act in a manner that is illegal, oppressive, or fraudulent[.]" Although there is not, and probably cannot be, a definitive definition of oppressive conduct under the statute, at least in a closely held corporation conduct that violates the majority's fiduciary duties to the minority is likely to be oppressive. See Baker v. Commercial Body Builders, 264 Or 614, 628-29, 507 P2d 387 (1973) (discussing former ORS 57.595, the predecessor statute to ORS 60.661); Tifft v. Stevens, 162 Or App 62, 77-78, 987 P2d 1 (1999). Cases that discuss either oppressive conduct or the majority's fiduciary duties are, thus, relevant to this question.

A number of cases make it clear that when

"the majority shareholders of a closely held corporation use their control over the corporation to their own advantage and exclude the minority from the benefits of participating in the corporation, [in the absence of] a legitimate business purpose, the actions constitute a breach of their fiduciary duties of loyalty, good faith and fair dealing."

Noakes v. Schoenborn, 116 Or App 464, 472, 841 P2d 682 (1992). A finding that the majority shareholders have engaged in oppressive conduct under ORS 60.661 permits the court either to order a dissolution of the corporation or to award lesser appropriate relief, including requiring the majority to buy out the minority's interest at a price that the court fixes. See Baker, 264 Or at 631-32. Because many things can constitute oppressive conduct or a breach of fiduciary duties, what matters is not so much matching the specific facts of one case to those of another but examining the pattern and intent of the majority and the effect on the minority of those specific facts. See Chiles v. Robertson, 94 Or App 604, 767 P2d 903, on recons 96 Or App 658, 774 P2d 500, rev den 308 Or 592 (1989) (the majority is more likely to fulfill its duties by acting with a fiduciary attitude than by trying to follow specific rules).

The facts of this case show a classic squeeze-out. The events fit into several of the categories that F. Hodge O'Neal describes in his pioneering treatise, F. Hodge O'Neal and Robert B. Thompson, O'Neal's Oppression of Minority Shareholders (2d ed 1999). (12) Defendants withheld dividends and other benefits from plaintiff while preserving benefits for themselves.

"The withholding of dividends or other return on one's participation in a business enterprise is an essential part of most squeeze-out efforts. * * *

"* * * [W]itholding dividends can be especially devastating in an S corporation as all corporate income is passed through to the shareholders for tax purposes and shareholders are required to pay taxes on that income, but if no dividends are declared, the shareholders will have no cash from the enterprise with which to pay those taxes."

1 O'Neal,