Tammy Wynette sang D-I-V-O-R-C-E.
The Eighth Circuit today overturned claims arising from a business divorce. Each side owned half of a company, Twin City, before one bought out the other. The sellers sued for fraud, breach of fiduciary duty, insider trading under an Iowa statute, and breach of contract. The court held that fact issues barred summary judgment on the fiduciary duty, insider trading, and contract claims because the record suggested that the buyers breached fiduciary duties by not disclosing impending transactions to the sellers, used the secret information to trade on it, and breached a provision for recalculating the purchase price.
The transactions may have materially affected the value of the seller’s Twin City stock, the court concluded, by ridding the company of a losing joint venture obligation, giving it control of its main operating company for cheap, and providing it with better financing. Also, as insiders in a close corporation, the defendants under applicable Minnesota law had a duty to tell the sellers about the impending happy turn of events. Questions of materiality and knowledge, the court held, precluded summary judgment. Dunning v. Bush, No. 07-2764 (8th Cir. Aug. 5, 2008).
The court also found ambiguity in a contract provision relating to recalculation of the purchase price for the plaintiffs’ shares in Twin City and held that the district court erred in striking a breach of contract claim as a sanction for late supplementation of an expert report on valuation.
