Majority Shareholders of a Closely Held Delaware Corporation May Be Liable for "Freezeout"

On October 5, 2004, in Clemmer v. Cullinane, the Massachusetts Appeals Court held that a minority shareholder in a closely held Delaware corporation may be entitled to relief in the event of a “freezeout” by the majority shareholders.

The plaintiff claimed that the defendants, who held 55% of the corporation’s stock, had “breached their duty of good faith and fair dealings to the plaintiff and wrongfully froze the plaintiff out of his position as an employee.” The plaintiff further alleged that as the corporation paid no dividends, being removed as an employee deprived him of his sole economic benefit from the stock he held and that he had been effectively deprived of the ability to exert any influence over the affairs of the corporation, despite his status as a shareholder and director.