LARSON TEXTS, INC. v. O'NEIL

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

LARSON TEXTS, INC., et al., )

Plaintiffs, ) Civil Action No. 1:19-cv-297-SPB

Vv. )

)

SCOTT O’NEIL, )

Defendant.

MEMORANDUM OPINION

Susan Paradise Baxter, United States District Judge

This litigation arises out of a dispute between Scott O’Neil (“O’Neil”), a minority

shareholder and former director of Larson Texts, Inc., and the remaining shareholder/directors,

all of whom -- unlike O’Neil -- are members of the Larson family. The case began as a

declaratory judgment action filed by Larson Texts, Inc., Roland Larson, Deanna Larson,

Timothy Larson, and Jill Larson Im (collectively, “Plaintiffs”). O’Neil, the only named

Defendant, has asserted counterclaims for breach of fiduciary duty, shareholder oppression, and

civil conspiracy.

Pending before the Court is the Plaintiffs’ motion for partial summary judgment as to

O’Neil’s claims of shareholder oppression and civil conspiracy. For the reasons that follow, the

Plaintiffs’ motion will be granted in part and denied in part.

I. FACTUAL BACKGROUND!

Larson Texts, Inc. (hereafter, “Larson Texts” or the “Company”) is a closely held

company engaged in the creation and publication of math textbooks. ECF 51, {; ECF 57, 41.

The business was originally formed by Roland Larson as a sole proprietorship and was formally

incorporated in 1992. ECF No. 51, §4; ECF 57, 94; see ECF No. 51-1, O’Neil Depo. at 15.

At all times relevant to this lawsuit, Larson Texts has had five voting shareholders, each

of whom holds an equal twenty percent (20%) of the voting stock, fo wit: Roland Larson,

Deanna Larson, Timothy Larson, Jill Larson Im, and Defendant O’Neil. ECF 51, 92-3; ECF 57,

492-3; ECF No. 1, {11-12; ECF No. 19, #{11-12. Timothy Larson and Jill Larson Im are the

children of Roland and Deanna Larson. O’Neil is the only voting shareholder who is not a

member of the Larson family.”

At the time of Larson Texts’ incorporation, O’Neil served as the Company’s chief

executive officer (“CEO”). ECF No. 51, 94; ECF 57, 94. In February 2010, O’Neil voluntarily

resigned as CEO but continued to serve both as treasurer and as a member of the Company’s

board of directors. ECF 51, §§ 8-9; ECF 57, {§ 8-9. For these services, Scott received annual

compensation in excess of $300,000. ECF 51, 10; ECF 57, §10. Upon O’Neil’s

! The following facts are derived from: (1) the Plaintiffs’ Concise Statement of Material Facts,

ECF No. 51, (2) Defendant’s Response thereto and statement of additional facts, ECF No. 57,

and (3) Plaintiffs’ reply to Defendant’s statement of additional facts, ECF No. 62. Where

relevant, the Court also cites portions of the evidentiary record.

Unless otherwise noted, the following facts are not genuinely disputed. For purposes of this

Memorandum Opinion, any genuinely disputed facts are construed in the light most favorable

to the Defendant as the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio

Corp., 475 U.S. 574, 587 (1986).

2 Although the Company also has non-voting shareholders, their status is not material to the

pending motion. Therefore the Court’s discussion and analysis is limited to the voting

shareholders.

recommendation, Matt Totzke (“Totzke”) became the new CEO when O’Neil stepped down

from that position. ECF 51, §8; ECF 57, §8.

Over the ensuing years, events transpired which led to a falling out between O’Neil and

the Larsons. There is some disagreement in the record as to what underlay the parties’

differences. Deanna Larson perceived that O’Neil “had a different vision for [the] company,” as

compared to the other shareholders. ECF No. 51-2, Deanna Larson Depo. at 15. Roland Larson

and Jill Larson Im both testified that the family members wanted to grow the company and inves

in new directions, whereas O’Neil was less interested in reinvesting profits back into the

business. ECF No. 51-4, Roland Larson Depo. at 22-23; ECF No. 51-5, Jill Larson Im Depo. at

23. Timothy (“Tim”) Larson maintains that it was a “fairly regular occurrence” for O’ Neil to

yell during board meetings and “occasionally to storm out,” which Tim felt was “getting in the

way of running” the Company. ECF No. 51-3, Tim Larson Depo. at 31. But whereas Tim

Larson described O’Neil’s behavior as verbally “abusive” toward others, Totzke denied any

awareness of verbal abuse during his seventeen-year working relationship with O’Neil. See ECF

No. 51-3, Tim Larson Depo. at 19-20; ECF No. 51-7, Totzke Depo. at 12-13. For his part,

O’Neil perceived that the Larsons wanted him out of the business because he was the only non-

family shareholder. ECF No. 51-1, O’Neil Depo. at 38-40.

In any event, matters came to a head between O’Neil and the other shareholder/directors,

starting in mid-2018. During a board of directors meeting held on May 15, 2018, a disagreement

arose concerning O’Neil’s belief that the Company should obtain market research for one of

Larson Texts’ signature products. ECF No. 51-6; see also ECF 51, (15; ECF 57, 415. Asa

result of this disagreement, both Roland Larson and O’Neil wound up leaving the meeting. Id.

The following morning (May 16, 2018), Totzke emailed the board members with

proposed dates for their next meeting. O’Neil sent Totzke a one-sentence reply, stating simply:

“J will not be attending any more Larson Board meetings.” ECF No. 51-8.

At some point around this time or shortly thereafter, O’Neil had a conversation with

Totzke in which he remarked that “if [the other shareholders] wanted me [to], I would sell my

shares.” ECF 51, 919; ECF 57, 919; ECF No. 51-1, O’Neil Depo. at 36-37, 42. O'Neil claims

he made this statement because he was under the impression that the Larsons “didn’t want [him]

there.” ECF No. 51-1, O’Neil Depo. at 38. In a subsequent email dated May 22, 2018, Totzke

outlined a proposal whereby O’Neil would immediately resign and pledge his shares to the

Company and, in return, he would be compensated for his shares based on a valuation of the

Company as of December 31, 2019. ECF 51, 20; ECF 57, §20; see ECF No. 51-9. Despite

broaching the possible sale of his shares, O’Neil claims he was “shocked” by the May 22, 2018

purchase offer and felt like it “was out of the blue.” ECF No. 51-1, O’Neil Depo. at 37. In any

event, O’Neil never accepted the offer outlined in Totzke’s email.

At the next meeting held on June 7, 2018, the board voted, by a 4 to 1 majority, to

eliminate the “extra” salary paid to the office of treasurer. Additionally, the board elected to

place Totzke in that position in lieu of O'Neil. ECF 51, 921; ECF 57, §21; ECF No. 62, 965;

ECF No. 51-10. All four of the Larson family board members voted in favor of these measures

while O’Neil, through his attorney acting as proxy, voted against. Jd. In addition to serving as

treasurer, Totzke continued to serve as the Company’s president, while Deanna Larson continued

to serve as secretary. Because only the “extra” salary paid for the office of treasurer was being

eliminated, both Totzke and Deanna Larson continued to receive compensation for serving in

their respective roles as CEO and secretary. And although O’Neil was removed from the

treasurer position, he remained on the Company’s board of directors and continued to receive a

salary for that position. ECF No. 51-10.

Later that summer, however, during a special meeting held on August 22, 2018, the four

Larson family directors voted to reduce O’Neil’s salary to zero dollars, effective immediately.

ECF No. 62, §67; ECF No. 51-11. O’Neil, through his attorney acting as proxy, voted against

the measure. Id.

That same month, Deanna Larson was chosen to replace O'Neil as the manager of

Norcross Land Management, LLC, a related entity that owns the Company’s real estate. ECF

No. 57-1; ECF No. 62, §66. This change occurred at a special meeting of the LLC’s members

held on August 3, 2018, during which all four Larson family members voted in favor of the

change in management. ECF No. 57-1. Although O’Neil and his attorney had both been notified

of the meeting, neither of them attended. Id.

Additional changes at Larson Texts ensued in the Fall of 2018. Ata special meeting of

shareholders held on November 6, 2018, the four Larson family members voted to adopt a

resolution amending the Company’s Articles of Incorporation. This amendment allowed the

voting shareholders to remove the entire Board of Directors, with or without cause, by majority

vote, ECF No. 51-12; ECF 51, (23; ECF 57, §23; ECF No. 62, §68. Only O’Neil voted against

the proposed amendment. ECF No. 51-12.

Three days later, on November 9, 2018, the board adopted a resolution reducing the

number of directors from 5 to 3. ECF No. 51-13; ECF 51, (24; ECF 57, (24; ECF No. 62,

That same date, a majority of the voting shareholders approved a resolution to remove the

existing 5-member board and reconstitute a 3-person board, to be comprised of Timothy Larson,

Deanna Larson, and Jill Larson Im. ECF No. 51-14; CF 51, 925; ECF 57, 425; ECF No. 62, □□□□

All of these actions were approved by the four Larson family members, with O’Neil voting his

shares against them. ECF No. 51-13; ECF No. 51-14; ECF 51, 4926, 28; ECF 57, 9926, 28. As

result of the actions taken by the board and the shareholders, O’Neil’s employment with Larson

Texts was also terminated, effective November 9, 2018. ECF No. 57-2; ECF No. 62,970. But

despite his termination as a salaried employee of Larson Texts, O’Neil currently remains a

twenty percent (20 %) voting shareholder.

O’Neil’s shareholder status has placed him at the center of a dispute with the Larsons

concerning the Company’s borrowing needs. Because orders for Larson Texts’ products

generally coincide with the start of the school year, the Company tends to receive most of its

revenue in the second half of the calendar year. ECF No. 51, 429; ECF No. 57, (29. To ensure

that it has sufficient cash on hand for operations throughout the year, Larson Texts has

traditionally relied on various loans and lines of credit. ECF No. 51, §30; ECF No. 57, 930. For

at least the past 15 years, the Company’s lender has required that all of Larson Texts’ voting

shareholders (including O’Neil) provide personal guaranties to secure Larson Texts’ loans. ECF

No. 51, 431; ECF No. 57, 931. Until 2019, all voting shareholders had agreed to do so. ECF No.

1, §16; ECF No. 19, 416.

In 2019, however, the Company sought to increase its borrowing capacity by securing an

additional $3 million loan. ECF No. 51-15. In the early part of that year, Larson Texts learned

that O’Neil had written to the Company’s lender, Erie Bank, advising that he would not

personally guarantee any future loans. ECF No. 51, 932; ECF No. 57, This prompted

inquires as to whether Erie Bank would agree to lend the required funds if most, but not all,

voting shareholders provided guaranties for the new indebtedness. Erie Bank indicated its

amenability to such an arrangement. ECF No. 51, 33; ECF No. 57, 933.

Accordingly, Larson Texts created a plan (the “Guaranty Plan”) that offered

compensation -- in the form of additional voting shares -- to any voting shareholder who agreed

to provide a guaranty for the new loan. ECF No. 51, §34; ECF No. 57, 434. The plan’s primary

terms were that, in exchange for a shareholder’s personal guaranty of the new loan, Larson Texts

would issue to that shareholder a quantity of voting stock based on: (i) the overall value of the

guaranty (which was determined to be $60,000), (ii) the number of shareholders participating,

and (iii) the value of a voting share in Larson Texts as of April 30, 2019. ECF No. 51, 935; ECF

No. 57, 935. The plan further provided that Larson Texts would engage its longtime valuation

firm, McGill, Power, Bell and Associates (“MPB”), to conduct a valuation of the company as of

April 30, 2019. ECF No. 51, §36; ECF No. 57, (36. MPB had performed all of the outside

accounting work for Larson Texts and its related entities for many years prior to 2019. ECF No.

51, 937; ECF No. 57, 37.

Although Larson Texts offered the Guaranty Plan to all voting shareholders, O’Neil

elected not to participate in the plan. ECF No. 51, 39; ECF No. 57, 939. O’Neil’s reasoning for

not participating was that he had “no management input,” was “not on the board anymore,” and

was not drawing any salary or other compensation, apart from shareholder distributions. ECF

No. 51, §40; ECF No. 57, §40.

Consistent with the terms of the Guaranty Plan, MPB proceeded with its valuation and

ultimately concluded that, as of April 30, 2019, a single voting share in Larson Texts was worth

$25.53. ECF No. 51, 9941-42; ECF No. 57, §§41-42. Based on this valuation (the accuracy of

which O’Neil disputes), the Guaranty Plan would provide each of the participating Larson family

members an additional 611 shares of voting stock. ECF No. 51, §43; ECF No. 57, $43.

After MPB submitted its report, Larson Texts called a shareholders’ meeting to seek

agreement on the proposed valuation. ECF No. 51, 43; ECF No. 57, 43. While the Larsons

supported MPB’s valuation, O’Neil contested its accuracy, objected to the issuance of any shares

under the Guaranty Plan, and accused Larson Texts’ and the Larson family shareholders of

engaging in self-dealing and wrongdoing related to the Guaranty Plan. ECF No. 51, 944; ECF

No. 57, 944. In essence, O’Neil contends that MPB’s 2019 valuation produced an artificially

low stock price which, if adopted, would result in the Larson family members receiving a

disproportionate number of additional voting shares. In short, O’Neil views the Guaranty Plan as

an effort by the Larsons to “force him out” of the Company. ECF No. 51, §45; ECF No. 57, □□□□

II. PROCEDURAL BACKGROUND

To address this controversy, Larson Texts and the family director/shareholders filed this

declaratory judgment action asking the Court to issue a judgment declaring that: (1) the Guaranty

Plan does not violate any of the Plaintiffs’ obligations to O’Neil, (2) the April 30, 2019 valuation

performed by MPB represents a valid valuation of the business as of its effective date, (3) Larson

Texts may follow through with the Guaranty Plan by issuing shares to the participating

shareholders, and 4) none of the aforementioned actions violate O’Neil’s rights as a minority

shareholder in Larson Texts. ECF No. 1. In response to the Declaratory Judgment Complaint,

O’Neil asserted counterclaims against Larson Text and the Larson family members for alleged

breach of fiduciary duty (Counterclaim I), minority shareholder oppression (Counterclaim IT),

and civil conspiracy (Counterclaim III).

Plaintiffs have since filed the pending Rule 56 motion, which seeks summary judgment

on all counterclaims that are not predicated on their involvement in the Guaranty Plan. The

motion has been adequately briefed and joined and is now ripe for resolution.

Il. STANDARD OF REVIEW

Federal Rule of Civil Procedure 56(a) provides that summary judgment shall be granted □

if the “movant shows that there is no genuine dispute as to any material fact and the movant is

entitled to judgment as a matter of law.” A party seeking summary judgment always bears the

initial responsibility of informing the district court of the basis for its motion, and “identifying

those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue

of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P.

56). If the moving party satisfies this burden, the nonmoving party must then “go beyond the

pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and

admissions on file, designate specific facts showing that there is a genuine issue for trial.” Id. at

324 (internal quotation marks and citation omitted). In conducting its analysis, the court must

construe the record and any reasonable inferences in the light most favorable to the party

opposing summary judgment. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 US.

574, 587 (1986). But “[wJhere the record taken as a whole could not lead a rational trier of fact

to find for the non-moving party, there is no genuine issue for trial.” Jd.

IV. DISCUSSION

A. Defendant’s Shareholder Oppression Claim

Plaintiffs’ motion in this case seeks partial summary judgment “on all of Defendant’s

Counterclaims other than those focused on Plaintiffs’ Guaranty Plan.” ECF No. 52 at 1.

O’Neil’s first counterclaim asserts a breach of fiduciary duty claim based entirely on Plaintiffs’

involvement in the Guaranty Plan; accordingly, Plaintiffs have not sought summary judgment on

that claim. Instead, they direct their motion at Counterclaims I] and HI.

But although Plaintiffs’ motion presents a seemingly straightforward request, it does not

result in an entirely straightforward analysis relative to Counterclaim II. In that claim, O’Neil

asserts that Plaintiffs engaged in oppressive conduct through the following actions:

a. [V]oting to approve a Guaranty Compensation Plan following the removal of Defendant

O’Neil from the Board of Directors and eliminating his salary and benefits.

b. [D]evising a Guaranty Plan and a 2019 valuation of Stock ... which in effect dilutes

Defendant O’Neil’s stock ownership in the corporation.

c. Engaging in... mismanagement of the affairs of the corporation in that the Plaintiffs ...

sought borrowing to pay themselves excessive salaries, director fees and shareholder

distributions rather than to effectively manage the expenses and debts of the corporation.

d. Engaging in activities that constitute the improper valuation of voting stock in the

corporation relative to the 2019 valuation . . . by supplying information to the valuation

firm that was designed to suppress the value of the stock and thereby allowing the

Plaintiff shareholders to acquire more shares for themselves to the detriment of O’Neil.

ok

f. Engaging in financial transactions to benefit themselves by effectively borrowing money

to pay themselves excessive salaries, director fees and shareholder distributions in the

face of violation of financial covenants with banking institutions.

g. Engaging in activities and actions which have the effect of freezing out Defendant O’Neil

as a minority shareholder.

No. 19, §18(a)-(d), (f) and (g).?

3 Subsection (e), omitted above, is redundant of other allegation in that it also refers to Plaintiffs’

“scheme to proceed with the Guaranty Compensation Plan and the 2019 Valuation” and their

alleged efforts to “grant themselves additional shares in the corporation to the detriment to

Defendant O’Neil...” ECF No. 19, §18(e).

10

As these allegations demonstrate, O’Neil’s “shareholder oppression” claim 1s

substantially predicated on Plaintiffs’ actions relative to the Guaranty Plan. To that extent, the

claim is arguably redundant of Counterclaim I and also unsuitable for summary judgment

because, as Plaintiffs recognize, the Guaranty Plan involves disputed issues of material fact.

What the parties mostly focus on in their memoranda is O’Neil’s allegation that he has been

“frozen out” of the Company through Plaintiffs’ actions. But even this part of the Court’s

analysis is not entirely straightforward because, while O’Neil has alleged a “freeze out” in the

context of “shareholder oppression,” such allegations commonly arise in the context of claims

asserting breach of fiduciary duty, which are closely related to (and sometimes overlap with)

claims of shareholder oppression. Some discussion of the governing principles is necessary to

frame the Court’s inquiry.

Under Pennsylvania law, majority shareholders of a corporation owe a fiduciary duty to

minority shareholders. Minehan v. McDowell, No. 21-CV-053 14-CFK, 2022 WL 3563542, at *7

(E.D. Pa. Aug. 18, 2022) (citing Retina Assocs. of Greater Phila., Ltd. v. Retinovitreous Assocs.,

Ltd., A.3d 263, 277 (Pa. Super. Ct. 2017)). This fiduciary duty prevents majority shareholders

from using their power to exclude minority shareholders from their share of the benefits. Jd.

(citing Ferber v. Am. Lamp Corp., 469 A.2d 1046, 1050 (Pa. 1983)). “This does not mean, of

course, that majority shareholders may never act in their own interest, but when they do act in

their own interest, it must be also in the best interest of all shareholders and the corporation.”

Ferber v. Am. Lamp Corp., 469 A.2d 1046, 1050 (Pa. 1983) (citing Weisbecker v. Hosiery Wide

Patents, Inc., 51 A.2d 811, 814, 817 (Pa. 1947)).

“Pennsylvania courts recognize that freezing out a minority shareholder ‘for the benefit

of the majority shareholders constitutes a breach of the majority shareholders’ fiduciary duty to

11

the minority shareholders.’” Minehan, 2022 WL 3563542, at *7 (quoting Ford v. Ford, 878

A.2d 894, 905 (Pa. Super. Ct. 2005). “The term ‘freeze-out’ is often used as a synonym for

‘squeeze-out.’” Linde v. Linde, 220 A.3d 1119, 1142 (Pa. Super. Ct. 2019) (citing 1 O'NEAL &

THOMPSON'S OPPRESSION OF MINORITY SHAREHOLDERS & LLC MEMBERS § 1:1).

By the term “squeeze-out” is meant the use by some of the owners or participants

in a business enterprise of strategic position, inside information, or powers of

control, or the utilization of some legal device or technique, to eliminate from the

enterprise one or more of its owners or participants... [The term “partial squeeze-

out” means an] action which reduces the participation or powers of a group of

participants in the enterprise, diminishes their claims on earnings or assets, or

otherwise deprives them of business income or advantages to which they are

entitled. A squeeze-out normally does not contemplate fair payment to the

squeezees for the interests, rights, or powers which they lose.

Id. at 1141-42 (citing 1 O'NEAL & THOMPSON'S OPPRESSION OF MINORITY

SHAREHOLDERS & LLC MEMBERS § 1:1).

Stated differently, “[m]Jajority shareholders may not use the corporate process to deny a

minority shareholder his right to participate or to exclude the minority shareholder from the

proper share of benefits.” Mineham, 2022 WL 3563542, at *7 (citing Viener v. Jacobs, 834 A.2d

546, 556 (Pa. Super. Ct. 2003)). “Courts may find that a minority shareholder has been frozen

out when that shareholder's power or compensation is substantially diminished by means of

generally oppressive conduct, restriction of their employment in or access to the corporation,

payment of excessive salaries to majority shareholders, withholding of information, and

exclusion of minority shareholders from decision-making.” Jd. (citing Bair v. Purcell, 500 F.

Supp. 2d 468, 484 (M.D. Pa. 2007)). See also Orchard v. Covelli, 590 F. Supp. 1548, 1557

(W.D. Pa. 1984), aff'd, 802 F.2d 448 (3d Cir. 1986), and aff'd sub nom. Appeal of Orchard, 802

F.2d 448 (3d Cir. 1986) (“Tactics employed against a minority shareholder to effect a squeeze

12

| out can take on many forms including generally oppressive conduct, the withholding of

dividends, restricting or precluding employment in the corporation, paying excessive salaries to

majority stockholders, withholding information relating to the operation of the corporation,

appropriation of corporate assets, denying dissenting shareholders appraisal rights, failure to hold

meetings and excluding the minority from a meaningful role in the corporate decision-making.”’)

In the context of a claim alleging shareholder oppression, “[o]ppressive actions refer to conduct

that substantially defeats the ‘reasonable expectations’ held by minority shareholders in

committing their capital to the particular enterprise.” Ford v. Ford, 878 A.2d 894, 900 (Pa.

Super. Ct. 2005) (citation omitted).

Plaintiffs argue that, as a matter of law, O’Neil cannot maintain a claim for shareholder

oppression because he was not denied any of the rights attendant to his share ownership. To that

end, Plaintiffs seek to distinguish a number of cases cited by O’Neil, in which the courts found

evidence of oppression based on conduct by majority shareholders that Plaintiffs view as

materially more draconian.’ Plaintiffs point out that, since his retirement as CEO, O’Neil has

4 See, e.g. Linde v. Linde, 220 A.3d 1119, 1142 (Pa. Super. Ct. 2019) (majority shareholder

“changed the role of the secretary of the corporation; changed the quorum requirements for

transacting business; amended the by-laws to eliminate cumulative voting; and, empowered the

single majority shareholder to remove the entire board without cause...in furtherance of [his]

expressed desire to get [the minority shareholder] ‘out of his life’ and to economically ‘destroy -

[her].””); Orchard v. Covelli, 590 F.Supp. 1548 (W.D. Pa. 1984), aff'd, 802 F.2d 448 (3d Cir.

1986) (majority shareholder had breached the fiduciary duties owed to the minority shareholder

by engaging in conduct that included a refusal to pay dividends and refusing to pay the minority

shareholder for interest in renewed franchise); Ferber v. Am. Lamp Corp., 503 Pa. 489, 496, 469

A.2d 1046, 1049-50 (1983) (majority shareholders “disregarded their father's wish that their

sister [a minority shareholder] be provided for in some significant way from the profits of the

family business”); Ford v. Ford, 878 A.2d 894, 904 (Pa. Super. Ct. 2005) (majority

shareholder’s diversion of financial benefit from minority shareholders to himself was

oppressive); Viener v. Jacobs, 2003 PA Super 324, 22, 834 A.2d 546, 556 (Pa. Super. Ct.

2003) (company’s “assets and opportunities were squandered while the company was in dire

financial straits in a bizarre corporate machination designed to benefit [majority shareholder]”);

13

received shareholder distributions in the exact same manner as all the Larson family

shareholders, totaling nearly $5 million dollars. They insist that he has not been denied

information about the Company, prevented from voting, or “deprived” of employment.

Regarding O’Neil’s removal from the positions of treasurer and director, Plaintiffs maintain that

this was the result of the May 16, 2018 email wherein O’Neil stated that he would not be

attending any more board meetings. Indeed, Plaintiffs insist “[t]here can be no argument that

O’Neil’s unilateral and voluntary action of removing himself from board participation, and its

natural consequences of no longer being paid for such participation, constitutes oppression.”

ECF No. 52 at 7.

While Plaintiffs’ argument has some force, the Court is not persuaded that O’Neil’s claim

of shareholder oppression is amenable to resolution at the summary judgment stage. Upon his

removal from the positions of treasurer and director, O’Neil lost his employment with Larson

Texts and, with it, annual income in excess of $300,000, health insurance, ready access to

information such as corporate emails, and (presumably) a degree of managerial oversight.

Whether this diminishment in O’Neil’s power and compensation was substantial enough to

constitute an unlawful “freeze out” or otherwise “oppressive” conduct is a debatable issue that

must be resolved by a factfinder at trial. None of the cases distinguished by Plaintiffs compel

resolution of these issues at the Rule 56 stage.

As noted, Plaintiffs attribute O’Neil’s removal to his own actions in sending the May 16,

2018 email, which Plaintiffs appear to construe as a sort of de facto resignation. Certainly, a

factfinder could conclude that O’Neil lacked any reasonable expectation of continued

Bair v. Purcell, 500 F.Supp.2d 468 (M.D. Pa. 2007) (minority shareholder removed from board

of directors over his objection and then excluded from any financial benefit of his shares).

14

employment at Larson Texts following his statement that he did not plan to attend future board

meetings. But however persuasive that argument might be, the Court is not convinced that it

must be accepted as a matter of law. Here, O’Neil has testified concerning a meeting that

occurred prior to May 15, 2018, during which Tim Larson “stood up... and called [O’Neil] all

sorts of names.” ECF No. 51-1, O’Neil Depo at 38:20-22. According to O’Neil, the family’s

conduct at that meeting left him with the impression that they wanted him out of the Company.

Id. at 38:24-39:8. After O’Neil made his comment to Totzke about selling his shares, he received

the proposed buyout terms, which he never accepted. Thereafter, notwithstanding his May 16,

2018 email, O’Neil continued to participate in board meetings either remotely by phone or

indirectly through his attorney acting as a proxy. In any event, much of the board’s business

between June 7, 2018 and November 9, 2018 appears to have involved measures adverse to

O’Neil’s employment and participation in the Company. Viewing the evidence most favorably

to O'Neil, a factfinder might conclude that O’Neil did not intend to immediately sever his

employment with the Company, despite his falling out with the Larsons and his statement in the

May 16, 2018 email. In addition, a factfinder might infer that the Larsons were trying to push

O’Neil out of the business and that their actions between June 7 and November 9, 2018 were

undertaken as a result of his rejection of the Company’s offer to purchase his shares, rather than

in response to his May 16, 2018 email.

In sum, whether O’Neil had any reasonable expectation of continued employment and/or

involvement on the board of directors after May 16, 2018 is a factual question that must be

resolved at trial. Similarly, whether or not the Larsons’ actions “substantially defeated” any

reasonable expectations on the part of O’Neil involves factual inquiries that are not amenable to

resolution on the current record. And, to the extent O’Neil’s intentions and/or the Larsons’

15

motives bear on the shareholder oppression claim, those issues are also inherently factual and

best reserved for a factfinder to assess at time of trial. See Grill v. Aversa, No. 1:12-CV-120,

2014 WL 4672461, at *4 (M.D. Pa. Sept. 18, 2014) (“[I]t is well-settled that: ‘Motive is a

question of fact that must be decided by the [fact-finder], which has the opportunity to hear the

explanations of both parties in the courtroom and observe their demeanor.””) (citing authority).

As for the allegation that the family members paid themselves excessive compensation,

Plaintiffs have presented evidence that there was no material change in the payments they

received following O’Neil’s termination. However, the Court also notes O’Neil’s testimony that,

during his tenure on the board, “significant adjustments” were made to Roland Larson’s salary

which were never submitted for a vote but, rather, presented as a fait accompli. ECF No. 51-1,

O’Neil Depo. at 101-102. Plaintiffs have submitted evidence which confirms that Roland Larso

received substantially higher wages than the other shareholder/employees during the time period

2018 to 2021. ECF No. 66. And while Roland Larson testified about the extensive work he still

performs for the Company, O’Neil contests that point, giving rise to a genuinely disputed issue

of fact. See ECF No. 51-1, O’Neil Depo. at 108-109; ECF No. 51-4, Roland Larson Depo. at 33-

34.

In addition, there is evidence showing that, between 2018 and 2020, Larson Texts paid

substantial sums to Grant Larson Productions, LLC, a company owned by Tim Larson, his wife,

and his daughter. According to Tim Larson, this LLC undertakes production work for Larson

Texts on a contractual, “job-by-job” basis. ECF No. 51-3, Timothy Larson Depo. at 104. At

present, however, the record is underdeveloped concerning the nature of the work provided by

Grant Larson Productions, LLC, the extent to which such work has benefitted Larson Texts, and

16

the degree to which the contractual arrangements between the two companies were at arms’

length.

The Pennsylvania Supreme Court has stated that a majority shareholder’s fiduciary

position does not mean that majority shareholders may never act in their own interest, “but when

they do act in their own interest, it must be also in the best interest of all shareholders and the

corporation.” Ferber v. Am. Lamp Corp., 469 A.2d 1046, 1050 (1983). Notably, “Pennsylvania

law shifts the burden onto the fiduciary to prove that a transaction is fair and not fraudulent when

the fiduciary acts to benefit himself while in the fiduciary role.’” Bair v. Purcell, 500 F. Supp.

2d 468, 484 (M.D. Pa. 2007) (quoting also Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc.,

247 F.3d 79, 100-101 (3d Cir. 2001), Based on the limited record before the Court, the

undersigned cannot make any legally conclusive determinations as to whether Roland Larson,

Timothy Larson and/or Grant Larson Productions, LLC received excessive compensation from

Larson Texts. For this reason and the others stated above, the Court cannot conclude that

summary judgment is warranted as to the totality of O’Neil’s shareholder oppression claim.

On the other hand, the Court does agree that certain aspects of O’Neil’s shareholder

oppression claim are untenable as a matter of law. For one, the record does not support the

existence of a genuinely disputed issue of fact relative to O’Neil’s allegations of corporate

mismanagement. Indeed, as Plaintiffs point out, when O’Neil was questioned about this

allegation, he admitted that he did not believe the Company is being mismanaged, just that it has

a “different type of management” now. ECF No. 51, §62; ECF No. 57, §62; ECF No. 51-1,

O’Neil depo. at 96:2-22. Nor is the Court aware of any evidence to support O’Neil’s averment

that Plaintiffs have in any way violated their financial covenants with the Company’s banking

institutions. Accordingly, Plaintiffs are entitled to summary judgment insofar as O’Neil’s

17

counterclaim for shareholder oppression is based on these allegations. In all other respects, the

Plaintiffs’ motion for summary judgment relative to Counterclaim JI will be denied.

B. Defendant’s Civil Conspiracy Claim

In his third counterclaim, O’Neil alleges that the Plaintiffs “entered into an agreement” to

deprive him of his rights as a shareholder, to oppress him as a shareholder, and “to otherwise

breach statutory and common law duties owed to him . . .” ECF No. 19 at 16, 20. O'Neil

predicates this claim on the same conduct that forms the basis of his breach-of-fiduciary-duty

and shareholder oppression claims. See id. $21.

Plaintiffs have moved for summary judgment on two grounds. First, they allege that

O’Neil cannot prove the existence of a conspiracy. Second, Plaintiffs contend that the □

conspiracy claim is barred by the “intra-corporate conspiracy doctrine,” discussed below.

The essential elements of a claim for Pennsylvania common law civil conspiracy are: (1)

a combination of two or more persons acting with a common purpose to do an unlawful act or to

do a lawful act by unlawful means or for an unlawful purpose, (2) an overt act done in pursuance

of the common purpose, and (3) actual legal damage. Allison v. Chesapeake Energy Corp., No.

CIV.A. 12-0900, 2013 WL 787257, at *11 (W.D. Pa. Jan. 29, 2013) (citing Phillips v. Selig, 959

A.2d 420, 437 (Pa. Super. Ct. 2008)), report and recommendation adopted, No. 2:12CV900,

2013 WL 787180 (W.D. Pa. Mar. 1, 2013); see also Bair v. Purcell, 500 F. Supp. 2d 468, 500

(M.D. Pa. 2007). What is missing in this case, according to Plaintiffs, is any proof that they

committed an unlawful act or had an unlawful purpose. Plaintiffs maintain that, at most, O’Neil

has shown that the Larsons had a disagreement with him about the manner in which the

Company should be run; but mere “[d]isagreement is not unlawful.” ECF No. 52 at 8. But the

18

Court has already found that there are material issues of disputed fact concerning O’Neil’s

allegations of shareholder oppression, and it is clear on this record that each of the four Larson

family members participated in the corporate decisions that underlay that claim. The Court is

therefore not inclined to accept Plaintiffs’ first basis for summary judgment.

On the other hand, Plaintiffs’ second ground appears to have merit. Because a □

corporation can act only through its officers and employees, the intra-~corporate conspiracy

doctrine recognizes that “an entity cannot conspire with one who acts as its agent.” Gen.

Refractories Co. v. Fireman's Fund Ins. Co., 337 F.3d 297, 313 (3d Cir. 2003). “TS |imilarly,

agents of a single entity cannot conspire among themselves.” Rutherfoord v. Presbyterian-

University Hosp., 612 A.2d 500, 508 (Pa. Super. Ct. 1992). Courts have recognized an exceptio

to this rule “when the employees have acted for their sole personal benefit’ because these

actions would therefore be ‘outside the course and scope of their employment.’” See Houser v.

Feldman, 600 F. Supp. 3d 550, 570 (E.D. Pa. 2022) (quoting Heffernan v. Hunter, 189 F.3d 405,

412-13 (3d Cir. 1999)). Here, Plaintiffs argue that, at all times, they were acting as agents of

Larson Texts and, as such, they were legally incapable of conspiring with each other. The Court

agrees and, notably, O’Neil does not specifically acknowledge or attempt to rebut this point.

Because the intra-corporate conspiracy doctrine precludes O’Neil from establishing a conspiracy

between two or more of the Plaintiffs, the conspiracy claim fails as a matter of law.

V. CONCLUSION

Based upon the foregoing reasons, the Plaintiffs’ motion for a partial grant of summary

judgment will be granted as to Counterclaim II, insofar as Defendant’s “shareholder oppression”

claim is predicated on averments of corporate mismanagement and/or a breach of financial

19

covenants. The motion will also be granted as to Counterclaim III. In all other respects, the

motion will be denied.

An appropriate order follows.

\ Stet / LECLE. □

Susan Paradise Baxter

United States District Judge

20