Kaplan v. First Hartford Corporation and another
Arguing Against an Expansive Definition of "Oppression" Under Maine's Business Corporation Act
This was an appeal to the First Circuit of a decision by the federal District Court in Maine. The plaintiff, who prevailed below, had sued First Hartford Corp. (a small, publicly-held Maine Corporation) under the provisions of Maine's Business Corporation Act ("MBCA") that permit an "oppressed" shareholder to bring a direct action against the corporation to obtain, inter alia, a buyout of his shares, the relief ordered in this case.
The issue on appeal was whether the plaintiff had the right to bring an oppression claim in the first place when virtually all of his claims concern alleged injuries to the corporation's assets, and not to him personally. In other words, the plaintiff's claims were indistinguishable from classic shareholder derivative claims, yet they had been brought under a different section of the MBCA, the oppression provisions.
Because the distinction between a shareholder derivative claim and a shareholder direct oppression claim is of great importance to principles of corporate governance, and most courts have firmly upheld that distinction, NELF filed an amicus brief in support of First Harford, arguing that a shareholder who alleges only harm to the corporation should be restricted to the MBCA's derivative action requirements and should not be permitted to evade these requirements by invoking the oppression provision. NELF argued that the oppression provision should only be available to the shareholder who has alleged direct harm, i.e., a loss separate and distinct from that of the corporation and, indirectly, all of its shareholders. Where, as here, the claim actually relates entirely to the corporation, the corporation's board of directors, and not the complaining shareholder, should have the opportunity and autonomy to decide in good faith whether pursuing the claim is in the corporation's best interests. Moreover, even assuming a meritorious claim, any relief awarded should go the corporation, which is the injured party, and not to the complaining shareholder.
Disappointingly, on August 17, 2011, the First Circuit summarily affirmed the District Court's decision in this case, without an opinion.