District Judge Gregory Woods

Read Full-Text Decision

Defendants moved to dismiss action asserting claims for fraudulent inducement, conversion, waste, a derivative claim for breach of contract, and declaratory judgment requiring defendants to repurchase plaintiff’s shares. Plaintiff and individual defendants formed defendant U3 Advisors. Plaintiff asserted that defendants agreed to buy portions of stock over a period of 4 years, with the final portion purchased upon plaintiff’s decision to retire. Plaintiff alleged defendants refused repeated demands for repurchase and attempted to have her accept less than the agreed share value. Plaintiff further alleged individual defendants diverted U3 resources to another entity that they solely owned. Finally, plaintiff contended she could assert claims derivatively because she was a shareholder and made sufficient demand. The court granted defendants’ motion in part, ruling that the stockholder agreement only gave the company a repurchase option. The court further ruled that plaintiff had failed to comply with procedures to bring her derivative claims against defendants. However, the court held that plaintiff plausibly stated her breach of fiduciary claim, although requested briefing on whether she had to bring the claim directly or derivatively.