The Westlaw headnote in Minority Dewey v. Bechthold, 18-CV-1739-JPS, 2019 WL 2193865 (E.D. Wis. May 21, 2019), explains:
Background: Minority shareholders of several closely held corporations and various related trusts and beneficiaries brought action against majority shareholders and corporations, alleging fraud and violations of Wisconsin state law in connection with their rights as shareholders, and seeking declaratory judgment that creation of transfer restriction on shares gave majority shareholders the ability to manipulate the books to force minority stockholders to sell their shares to the controllers at an artificially-depressed price, which rendered right-of-refusal provision in transfer restriction unreasonable and unenforceable as a matter of law. Defendants moved to dismiss for failure to state a claim. ...
Holdings: The District Court, J.P. Stadtmueller, J., held that: ...
2 transfer restriction was not invalid, unreasonable, or unenforceable;
In support of that holding, the Court explained that:
Wis. Stat. § 180.0627(4)(a) permits right-of-refusal transfer restrictions that “obligate the shareholder...first to offer the corporation or other persons, whether separately, consecutively or simultaneously, an opportunity to acquire the restricted shares.” Most courts in Wisconsin (and throughout the country) uphold these restrictions if they are “reasonable” and if the party against whom the restriction is asserted had notice of the restriction. Allen v. Biltmore Tissue Corp., 2 N.Y.2d 534, 161 N.Y.S.2d 418, 141 N.E.2d 812, 816 (N.Y. Ct. App. 1957); Bruns v. Rennebohm Drug Stores, 151 Wis.2d 88, 442 N.W.2d 591, 596 (Wis. Ct. App. 1989) (acknowledging that “close corporations have a special need to control the number and character of shareholders”); Casper v. Kalt-Zimmers Mfg. Co., 159 Wis. 517, 149 N.W. 754, 756 (Wis. 1914) (noting that right-of-refusal restrictions reflect sound business policy).2 However, “if the by-law under consideration were to be construed as rendering the sale of the stock impossible to anyone except to the corporation at whatever price it wished to pay, we would, of course, strike it down as illegal.” Allen, 161 N.Y.S.2d 418, 141 N.E.2d at 816. Although Wisconsin courts routinely uphold these types of provisions, some courts have held that rights-of-refusal should be narrowly construed. Frandsen v. Jensen-Sundquist Agency, Inc., 802 F.2d 941, 945–46 (7th Cir. 1986) (applying Wisconsin law and holding that a right-of-refusal is not triggered by a merger). Finally, it is worth noting that there is no legally mandated option price. Rather, the option price is set at the discretion of the corporation. See Nichols Constr. Corp. v. St. Clair, 708 F. Supp. 768, 771 (M.D. La. 1989), aff'd mem., 898 F.2d 150 (5th Cir. 1990) (holding that “the mere failure to pay ‘fair value’ for stock under a stock redemption agreement” is not “fraud or breach of fiduciary duty.”); F.B.I. Farms, Inc. v. Moore, 798 N.E.2d 440, 448 (Ind. 2003) (“to the extent that restriction devalues the shares in the hands of any individual shareholder by reason of lack of transferability, it is the result of the bargain they struck”); see also Stephen M. Bainbridge, Corporate Law, § 14.2 (3d ed. 2015) (explaining the aforesaid and noting that, where a right-of-refusal provision is in place, even option prices set at fair market value will be dramatically discounted by potential third party purchasers to account for the bargain's low likelihood of success).
