CLASS EXERCISE Do Shareholders Owe a Fiduciary Duty to Anybody? Harris v. Leikin Group Inc. 54 This was a complicated case involving 11 cousins who owned the common shares of a group of closely held corporations. other party. The Court confirmed that there is a per se fiduciary Bight of the cousins decided to "monetize" the value of their relationship between a director and the corporation, but not Interests in some of the corporations' assets. They entered between a director and a shareholder or between sharehold into a share redemption transaction with the corporations. To ers. The Court also noted that an ad hoc fiduciary relationship may arise as a matter of fact out of the specific circumstances tund the share redemptions, an equity investor purchased a of a particular relationship. In such a case, fiduciary duties are 50 percent interest in one of the assets. The investor made imposed on a person because his relationship with another the price of the interest public. The selling cousins realized the presumes the existence of fiduciary obligations. This depends price was much higher than the attributed value of the asset on the specific circumstances. Fiduciary duties rarely arise in that had determined the share redemption price. Six of the arm's length commercial transactions. eight selling cousins sued the non-selling cousins. The claim In this particular situation, the Court ruled that there was Included allegations of breach of fiduciary duty. not even an ad hoc fiduciary relationship between the two The selling shareholders asserted that the non-selling groups of shareholders. The two groups had negotiated an shareholders owed a fiduciary duty to all shareholders that agreement based on "hard self-interested bargaining." and could only be satisfied by the disclosure of the material they did not trust each other. The selling shareholders had information, namely, the value of the asset. The non-selling relled on their own advisers during the negotiations shareholders argued that they disclosed all material infor mation and that there was no fiduciary duty because the Discussion Questions transaction pitted one group of shareholders in opposition Should a shareholder owe a fiduciary obligation to the to the other. corporation or to other shareholders? What if she is a major The Court stated that a fiduciary relationship is one that shareholder? requires the fiduciary to act with absolute loyalty toward the