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Business Associations Keyed to Epstein, 5th Ed.
Cookies Food Products, Inc. v. Lakes Warehouse Distributing, Inc.
Citation:
430 N.W.2d 447 (1988)Facts
Cookies Food Products was founded in 1975 by L.D. Cook to produce and distribute barbeque sauce. After struggling financially in its first year, the company’s board approached Herrig, then a minor shareholder who owned auto parts and distribution businesses, to help distribute their products. In 1977, Cookies formalized an exclusive distribution agreement with Herrig’s company, Lakes Warehouse. Under this arrangement, Cookies paid Lakes 30% of gross sales for distribution services. Sales increased dramatically under this arrangement. In 1981, Cook decided to sell his majority interest, and Herrig eventually acquired 53% of the company’s shares. After gaining control, Herrig replaced most of the board members and made several changes to the business arrangements, including extending the distribution agreement, adding warehousing services, developing a taco sauce recipe for which he received royalties, and receiving consulting fees. The company continued to be profitable, but paid no dividends due to an SBA loan restriction. Minority shareholders brought suit, claiming Herrig’s compensation arrangements were excessive and constituted a breach of his fiduciary duties.
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