Keith Paul Bishop notes:
In Jones v. H. F. Ahmanson & Co., 1 Cal. 3d 93 (1969), the California Supreme Court famously held:
Majority shareholders may not use their power to control corporate activities to benefit themselves alone or in a manner detrimental to the minority. Any use to which they put the corporation or their power to control the corporation must benefit all shareholders proportionately and must not conflict with the proper conduct of the corporation’s business.
Id. at 108. The Nevada Supreme Court has not explicitly adopted Jones, but has recognized the possibility that minority stockholders may be able to pursue a breach of fiduciary duty claim against the majority stockholders. Cohen v. Mirage Resorts, Inc., 119 Nev. 1, 11 (2003).
In Jones v. H.F. Ahmanson & Co., 460 P.2d 464 (Cal. 1969), the California supreme court, per Chief Justice Traynor, limited the ability of controlling shareholders to create a market for their shares without providing comparable liquidity for the minority.
The United Savings and Loan Association of California was a closely held financial institution. The defendants owned about 85 percent of United’s shares. Defendants wished to create a public market for their shares, a task that could have been accomplished using any of several methods, most of which would have created a market for all shareholders’ stock. Instead of adopting any of those options, however, the defendants set up a holding company, to which they transferred their shares. The holding company then conducted a public offering of its stock, which created a secondary trading market for that stock. The 15 percent of United’s stock that was not owned by the holding company was thus left without a viable secondary market.
The California supreme court held that when no active trading market for the corporation’s shares exists, the controlling shareholders may not use their power over the corporation to promote a marketing scheme that benefits themselves alone to the exclusion and detriment of the minority.
It once seemed likely that Ahmanson would become an important precedent, perhaps precluding a wide range of transactions including sales of control blocks at a premium. At least outside California, that has not happened. See Nixon v. Blackwell, 626 A.2d 1366 (Del.1993); Toner v. Baltimore Envelope Co., 498 A.2d 642 (Md. 1985); Delahoussaye v. Newhard, 785 S.W.2d 609 (Mo. App. 1990).
Even in California, there seems to be something of a trend towards limiting Ahmanson to its unique facts and procedural posture. See, e.g., Miles, Inc. v. Scripps Clinic and Research Foundation, 810 F. Supp. 1091 (S.D. Cal. 1993) (“The Jones case did give the narrow circumstance in which a fiduciary duty may be imposed: when a majority shareholder usurps a corporate opportunity from or otherwise harms the minority shareholder.”); Kirschner Bros. Oil Co., Inc. v. The Natomas Co., 229 Cal. Rptr. 899 (Cal. App. 1986) (noting that Ahmanson’s sweeping dicta must be “carefully related” to the facts before a violation can be found; hence, plaintiffs must explain with “specificity what they . . . might have been entitled to that they did not receive”). But see Stephenson v. Drever, 16 Cal. 4th 1167, 1178, 947 P.2d 1301, 1307 (1997) (calling Jones a "leading case").
If Ahmanson is to remain on the books, a debatable proposition, it should be so limited. The case was decided on appeal from the trial court’s grant of a motion to dismiss. Interpreting the facts most favorably for the plaintiffs, the defendants went out of their way to deprive the minority shareholders of a market for their shares, reduced the dividend in order to deprive the minority shareholders of any economic return, at least in the short run, and displayed their true objective by offering a low price for the minority shares. In short, this is just a run of the mill squeezeout case. Unfortunately, there is much broader dicta in the opinion—and it is that dicta for which the case is frequently cited.
