Minnesota Court of Appeals
Nygaard v. Nygaard
No. A13-0276, 2014 WL 349647 (Unpublished)
Although the Nygaard v. Nygaard case is an unpublished one, it presents an interesting issue of usurping corporate opportunities between a husband and wife that co-owned a business. In this case, Brenda Nygaard and Jeffrey Nygaard were married in 1982 and then divorced via stipulation in 2011. Since 1992, however, the parties had operated a corporation, Nygaard Enterprises, Inc. (“NEI”). NEI stripped paint from equipment and vehicles for corporate clients. Both Brenda and Jeffrey owned 50% of the stock of the business. Jeffrey was the CEO and Brenda handled the accounting. The parties were not able to work out their differences with regards to the business during their divorce and NEI was ultimately shut down.
Soon after NEI’s demise, Jeffrey opened a new business called Nygard Industrial Painting, Inc. (“NIPI”), essentially doing the same work that NEI was doing and using some of NEI’s old employees. Brenda brought suit alleging that Jeffrey had usurped corporate opportunities for NEI with his start-up of the new company, NIPI, breached his fiduciary duties and committed fraud. The district court ruled that wife “failed to prove her claims.”
First, the court noted that “[s]hareholders of a closely-held corporation owe each other a fiduciary duty that requires them to be open, honest, and fair and to adhere to highest standard of integrity and good faith in their dealings with each other.
Usurping a Business Opportunity
A two-prong analysis is used to show whether there has been an usurpation of a business opportunity:
- First is a required showing from the party claiming usurpation that a business opportunity is a corporate opportunity, meaning that the business opportunity is of sufficient importance and is so closely related to the existing or prospective activity of the corporation as to warrant judicial sanctions against its personal acquisition by a managing officer or director of the corporation, and
- If a corporate usurpation is shown, then the burden shifts to the acquiring officer to show that the acquisition did not violate the fiduciary duties of loyalty, good faith, and fair dealing toward the corporation.
The court analyzed Brenda’s claims that Jeffrey had used NEI’s assets for work performed and paid to NIPI, but it also identified evidenced raised by Jeffrey that accounted for any payments received by NIPI. In the end, the trial court held:
[Sharon] presented evidence that she claimed showed that [Jeffrey] used NEI’s assets to perform work for which NEI was not paid, and [Jeffrey] presented contrary evidence that he claimed identified the work that was done and the payments received. The district court found the evidence presented by husband more persuasive, and its findings addressing wife’s claims that husband used NEI’s assets to benefit NIPI are not clearly erroneous.
Essentially, what this case highlights is that it is an uphill battle to prove usurpation of corporate opportunities for the plaintiff. This is because deciding whether usurpation has taken place is so highly fact intensive.