A federal judge in Wisconsin has denied a motion to dismiss a claim brought forward by a sister who alleges that she was deceived into selling her 20% ownership interest in the family business, Windy Waters, for $1.3 million. The brother then sold the company one year later for $162 million.
The plaintiff, identified as Randall, has alleged fraudulent activities by the defendants in the redemption of her shares in the company. The court found that Randall’s allegations regarding the defendants’ misdeeds were sufficient to state a claim.
The defendants had argued that Randall failed to adequately investigate the companies’ financial health and that they did not have a duty to disclose any additional information under the circumstances. However, the court disagreed with the defendants’ argument, stating that the obligation to reveal accurate information rests with the speaker, not the listener.
The court also noted that Randall’s alleged inferences of scienter, or intent to deceive, are at least as likely as any of the defendants’ opposing inferences. This conclusion was reached particularly when considered in conjunction with the alleged misrepresentations and omissions made at the time of the negotiations.
The court has allowed Randall to plead her minority shareholder claim in the alternative. If Randall proves the redemption documents are void or unenforceable, she may be entitled to relief as a minority shareholder. The case is set to proceed to further stages, where the defendants will have the opportunity to challenge Randall’s allegations and present contrary evidence in support of their defense at summary judgment or trial. This case underscores the importance of transparency and fair dealing in business transactions, particularly those involving family businesses.