MADISON — A state appeals court on Thursday, Feb. 22 upheld the dismissal of a lawsuit brought by three minority shareholders of New Glarus Brewing Company stock, which alleged minority stockholder oppression and securities fraud.
The three shareholders alleged that they weren’t getting a reasonable share of the company profit, which regularly exceeded $15 million annually.
On Thursday, the District IV Court of Appeals agreed with Green County Circuit Judge Faun Marie Phillipson, who dismissed the suit in 2022 before trial. She found that the shareholders failed to present sufficient facts to show that the company had violated the law or that they were entitled to damages.
The three plaintiff shareholders had known brewery owners, Deborah and Dan Carey, prior to investing about $40,000 in the firm’s initial stock offering in 1993. They are Steven Speer, of Camas, Wash.; Roderick Runyan, of Lawrence, Kan.; and Karin Eichhoff, of Middleton, who inherited the stock after her husband, Dierck, passed away.
At the onset, the plaintiff shareholders owned about 5.5% of the stock. Deborah Carey owns 50.48%. The closely held company has 25 shareholders in all.
According to the 40-page opinion:
The plaintiff shareholders wanted a court order requiring that Carey and the company buy their shares at “fair value”; replace Carey with an independent director for the company and all non-voting shares be converted to voting shares.
To prove their claim of minority shareholder oppression, the plaintiffs needed to prove that Carey used her power to direct the company to pay dividends to majority shareholders that weren’t equally shared by minority shareholders.
The shareholders alleged that the company refused to distribute dividends beyond the amount necessary to cover their tax obligations.
New Glarus was holding about $40 million in cash reserves, $100 million in retained earnings and recently had an annual net income of between $14 million and $20 million with “virtually no debt,” the suit alleged.
However, that doesn’t prove minority shareholder oppression because they were notified at the beginning that no dividends would be paid to any shareholders not authorized by the board of directors.
“Thus, all shareholders were treated alike in this respect, consistent with the brewery’s obligation as stated to the plaintiff shareholders when they purchased their shares,” according to the unsigned opinion.
Carey called the plaintiffs’ claim “fiction.”
“They’re not working, they’re living off their investment,” she said in a phone interview Thursday.
The three shareholders have earned a “20,000% return on their investment,” she said.
Some of the stock the plaintiffs purchased in 1993 for $10 a share they sold in 2019 at $2,071 a share. Eichhoff sold 1,250 voting shares to the company for in excess of $2.588 million, Speer sold 625 voting shares to the company for more than $1.294 million and Runyan sold 40 shares to the Brewery for $82,840.
At about the same time, Carey approved a Shareholder Agreement, which gave the company first right of refusal to buy stock when shareholders wanted to sell it. The three shareholders alleged that the agreement restrictions prevented them from getting a “fair value” for their stock.
Also, at this time, Carey changed the preamble of the company’s bylaws to have the company remain “independent, locally owned and to operating in the best interests of the community.”
The opinion noted that the three shareholders couldn’t show how they were financially damaged by the company’s philosophy, it also stated that as majority shareholder, Carey has the right to unilaterally make those changes.
The shareholders securities fraud claim alleged that the plaintiff shareholders didn’t receive fair market value when they sold voting stock to the Employee Stock Ownership Plan in 2019 because of Cary’s alleged misrepresentations and failure to disclose certain facts.
However, the opinion noted that there is no allegation that Carey or the company made any representation that the purchase price would be based on fair market value.
Attorney Kevin Palmerstein, who represents the three shareholders, said he couldn’t comment on the case due to a suit his clients brought against Carey set for trial in Dane County Circuit Court in October.
Carey said that she was more than pleased with Thursday’s decision
“I’m overjoyed, not surprised and relieved as it gives the brewery team and the rest of the investors a great feeling of peace of mind.
“These people have tried to wreck havoc for the past two years and justice has finally prevailed,” she said.
Carey said the shareholders weren’t harmed but benefited from the company’s policy of being independent, locally owned and serving the community’s interest.
“That’s what makes us profitable. The labels, the packaging, the bottles and cans all come from Wisconsin. We’re the biggest purchaser of Wisconsin hops. Being local makes for a better product, makes us more responsible here and more interesting. We’re the 12th largest brewery in the nation,” she said.