The Kyanite case is over.
A $70-million settlement payment has brought an end to a Virginia court battle that produced a scathing opinion chastising majority owners of a family business for “oppressive” treatment of minority shareholders.
The settlement leaves the Dixon family of Buckingham County in control of The Disthene Group Inc., but the Dixons had to buy out the minority shareholders for ten times what the Dixons once said the stock was worth, according to lawyers for the minority shareholders.
“This is hard won justice,” said Thomas M. Wolf, part of the legal team that represented the minority family members.
In a 2012 opinion, Fairfax Circuit Judge Jane Marum Roush said the controlling owners had manipulated the company to diminish the interests of other family members.
“They slashed dividends, jacked up their compensation, treated the company like their personal fiefdom and, as Judge Roush said, treated the minority shareholders as ‘irksome interlopers,’” Wolf said in an interview.
The outcome of the case “has considerably strengthened the rights of minority shareholders in closely held companies across a broad spectrum of industries,” according to a news release from the Virginia-based LeClairRyan law firm, which represented the minority shareholders.
The resolution of the case is a “shot across the bow” for controlling shareholders in small companies, said John H. Craddock Jr., another member of the minority’s legal team.
The outcome “warns controlling shareholders that they can no longer hide behind the so-called business judgment rule. From now on, they can be held accountable for their actions,” Craddock said in the firm news release.
Roush’s 2012 opinion followed a lengthy trial in Buckingham Circuit Court, not far from the company-owned mine that produces the profitable mineral Kyanite.
After the trial, the controlling shareholders had a chance to resolve the case for much less than $70 million in a mediation session, Wolf said.
“The Dixons did not offer a penny at the mediation,” Wolf said.
One of the company’s long held assets, Virginia Beach’s Cavalier Hotel, was sold to a developer while the case remained pending. A two-year renovation project is planned for the aging resort.
I’d love to read more about the details of the case. What exactly was “oppresive” about the majority shareholders’ behavior? How did the lines get divided between majority/minority shareholders? What was the dividing line? Different sides of the family?
I suggest you read the opinion, which is at http://valawyersweekly.com/vlwblog/files/2012/08/Colgate-v-Disthene-Group.pdf.
May I commend you for the article on the Kyanite mine in Buckingham County, in which the minority stockholders finally got some justice.
I have no interest in this matter, financially, but had noticed over the years that the real estate tax assessment on the mine — admittedly a challenge for the assessor — was a tiny fraction of its true worth. It has a US-wide monopoly on what it mines. I had been chair of the Arlington County (VA) tax board for a decade and recognized that the assessment was miniscule.
Unfortunately the local paper, the Farmville Herald, has suppressed both that fact, and has not provided a line of useful coverage on the court case.
Thank you Peter, VA Lawyers Weekly comes through, as per usual. But FYI, LeClairRyan has a link to this particular decision that is a little more legible: http://www.leclairryan.com/files/Uploads/Documents/Colgate,%20et%20al.%20%20v.%20%20The%20Disthene%20Group,%20Inc..pdf