Citation. 273 F.3d 1115
Brief Fact Summary. Plaintiff, Emma Galler, sued Defendants, Isadore Galler et al., for reinstatement as a director of the Galler Drug Company and for money owed to her pursuant to a shareholder agreement between Isadore Galler and Plaintiff’s late husband.
Synopsis of Rule of Law. A shareholder agreement, particularly in closed corporations, that controls the voting for board members and the members’ management decisions, should nevertheless be enforced as long as the agreement is not fraudulent or harmful to the public.
Facts. Plaintiff’s late husband and his brother, Isadore Galler, owned all but 12 shares of a close corporation, Galler Drug (each of the brothers sold six shares to a third party that was subject to a buyback provision allowing each brother to reclaim their six shares). The brothers, in an effort to provide for their families if something were to happen to either brother, entered a shareholder agreement that would guarantee that their spouses would be elected to the board and that each would have equal representation on the board. The agreement also provided an annual payout to the spouses. There was no set expiration date of the agreement provisions. After Plaintiff’s spouse’s death, Defendants tried to destroy all copies of the agreement. Plaintiff sued to review the agreement in order to enforce the provisions therein. Defendant argued that the shareholder agreement was unenforceable because it violated state statutes that render invalid shareholder agreements that seek to c
ontrol management decisions.
Issue. The issue is whether the shareholder agreement between the majority shareholding brothers was invalid per statute or public policy.