In Link v. Link (2018AP1715), the Court of Appeals District III addressed fair value and corporate misappropriation claims among the owners of Link Snacks and various related entities, which sell and distribute meat products.

Jack, Troy, and Jay Link together owned various related entities including Link Snacks, Link Global, and its subsidiary Link Canada. When Jay and Troy acquired their shares of Link Snacks, they entered into a Buy-Sell Agreement, which gave Link Snacks the option to redeem their shares at fair market value if their employment was terminated. After a dispute and initial litigation in 2005, a court ordered the execution of the Buy-Sell Agreement, forcing Jay to return his Link Snack shares at fair market value. As a result of the 2005 litigation, the parties also dissolved the jointly-owned company Link Global.

Jay later filed the instant fair value claim and corporate misappropriation claims against Jack, Troy, and Link Snacks chief financial officer John Hermeier.

Fair Value

Jay alleged that the defendants had breached their fiduciary duty and that he should receive “fair value” for his Link Snacks shares as damages, instead of “fair market value” as stated in the Buy-Sell Agreement. (“Fair value” is the corporation’s net worth over the total number of shares. “Fair market value” reduces fair value by adjusting for lack of control and lack of marketability.)

The defendants argued Jay’s fair value claim was barred by claim preclusion. The court acknowledged that Jay’s claim meets the three requirements of claim preclusion. (The court found an identity of parties, final judgment, and identity of causes of action between the 2005 litigation and the instant case.) However, an exception to claim preclusion applied because Jay’s fair value claim had not been ripe for adjudication in the 2005 litigation. The fair value claim was contingent on the outcome of the sale of Jay’s Link Snacks shares, which had not yet occurred at the time of the 2005 litigation.

Furthermore, the two-year statute of limitations on the intentional tort of breach of fiduciary duty (Wis. Stat. § 893.57) did not bar Jay’s fair value claim because the fair value claim accrued when Jay sold his Link Snacks shares in 2009. The court rejected the defendants’ argument that the claim accrued in 2005 when Jay was allegedly forced out of Link Snacks.

Corporate Misappropriation

Jay’s corporate misappropriation claims alleged that the defendants had intentionally devalued Link Global’s subsidiary Link Canada in order to decrease the value of Jay’s share in Link Global. The court dismissed these claims, finding that Jay did not have standing to pursue the claims on his own behalf or on behalf of Link Global.

Since the injuries from the defendants’ alleged improper devaluation of Link Canada were primary to Link Canada, Jay would have had to file a derivative action on behalf of Link Canada. Shareholders may file derivative actions on behalf a corporation when the claim belongs to the corporation. In this case, Jay did not have standing as an individual because the claim belonged to Link Canada.

The court further found that Jay could not bring corporate misappropriation claims as a derivative action on behalf of Link Global. Again, the court found the primary injury of the devaluation of Link Canada was to Link Canada itself. Link Global did not have standing to sue for injuries on behalf of its subsidiary Link Canada, so the court dismissed Jay’s derivative claim in addition to his individual claim.