Bylaw Violation is also a Breach of Fiduciary Duty

Le v. Pham, 180 Cal. App. 4th 1201 (2010) dates all the way back to January of this year but is still worth noting.  In this case, the Court of Appeal held that the shareholders in a professional corporation had a fiduciary duty to the other shareholder even though the shareholders were not majority shareholders. The corporation’s Bylaws included a right of first refusal, and a married couple sold their shares in violation of that provision. The other shareholder sued derivatively and the court found that the purported sale breached the selling shareholders’ fiduciary duty in part because the transfer resulted in a closure of the pharmacy.  I expect that some may be tempted, and others will undoubtedly try, to extend this holding to all corporations.  Although professional corporations are formed under the General Corporation Law, they are also governed by the Moscone-Knox Professional Corporation Act (Corp. Code, § 13400 et seq.) which imposes specific limitations on who may acquire shares in a professional corporation.   Thus, I don’t think that the case should be read to establish a general fiduciary duty obligation with respect to buy-sell agreements.

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