Introduction

In Noel v. Pathology Medical Services, P.C., the Nebraska Supreme Court affirmed summary judgment in favor of a closely held professional corporation and its director-shareholders on claims for breach of fiduciary duty and shareholder oppression arising from the nonrenewal of a shareholder-employee’s annual employment agreement and the redemption of his shares at book value pursuant to corporate bylaws.

The decision provides powerful guidance for Nebraska close corporations on two fronts:

• Contracted terms in shareholder employment agreements and bylaws can define and delimit a shareholder-employee’s reasonable expectations, thereby defeating fiduciary-duty and oppression claims where the contracts authorize no-cause termination and book-value redemption.
• Discovery and summary-judgment continuance practice require specificity and compliance with meet-and-confer obligations; generalized assertions are insufficient to delay adjudication.

Parties and posture: Dr. Scott M. Noel, a pathologist and long-time minority shareholder, officer, director, and employee of Pathology Medical Services, P.C., sued the corporation and four director-shareholders (Drs. DeHaan, Lester, Reese, and Toalson). He alleged breach of fiduciary duty and “oppressive” conduct under the Nebraska Model Business Corporation Act based on (i) nonrenewal of his employment agreement and (ii) redemption of his shares at a book-value formula with no goodwill. He also sought declaratory relief concerning share value and a noncompetition clause. The district court partially granted an initial summary judgment motion, then later granted a second summary judgment motion on all remaining claims; it denied Noel’s motions to compel and to continue. The Supreme Court affirmed.

Summary of the Opinion

• The Court held that where a shareholder-employee has expressly agreed to an employment term allowing termination “for any reason or no reason,” and has voted for bylaws mandating redemption at book value upon cessation of employment, the undisputed evidence negates any reasonable expectation of continued employment or payout above book value; thus no breach of fiduciary duty or oppression is shown on these facts.
• Although the Court “assumed without deciding” that the reasonable-expectations test provides an appropriate lens to evaluate both fiduciary-duty claims among shareholders of close corporations and statutory oppression under Neb. Rev. Stat. § 21-2,197(a)(2)(i)(B), Noel could not raise a material factual dispute under that framework.
• On discovery, the Court affirmed denial of Noel’s motion to compel: his requests were overbroad, largely aimed at claims already resolved in the first summary-judgment order, he served no new discovery after the court limited discovery to valuation/redemption, and he failed to meet and confer as required by local rule.
• On continuance under Neb. Rev. Stat. § 25-1335, the Court affirmed denial because Noel’s affidavit did not specifically identify essential facts he sought to obtain or a basis to believe such facts existed.
• The Court noted Noel did not dispute on appeal the validity of the noncompetition provision or the board’s contractual right to nonrenew his employment and redeem his shares at book value (nor did he dispute the accuracy of the book-value calculation). The noncompete issue, therefore, was not a live appellate controversy.

Detailed Analysis

A. Precedents and Authorities Cited and Their Influence

• Close-corporation fiduciary duties: Nebraska cases equate the duties among close-corporation shareholders with partnership-like fiduciary duties, requiring “utmost good faith” and action for the “common benefit of all” (Bellino v. McGrath North; Anderson v. Bellino; Strohmyer v. Papillion Family Medicine; Bode v. Prettyman). The opinion canvasses these to frame the baseline duty, while clarifying that “common benefit” does not require each decision to benefit each shareholder personally and invokes an out-of-state articulation of “bad faith” as more than negligence—requiring dishonest purpose or conscious wrongdoing (Vontz v. Miller, Ohio App.).
• Oppression under the Nebraska Model Business Corporation Act: § 21-2,197(a)(2)(i)(B) allows dissolution for “illegal, oppressive, or fraudulent” conduct. Nebraska hasn’t codified a definition; the Court references three common tests—(1) frustration of reasonable expectations, (2) departure from fair dealing and fair play, (3) breach of fiduciary good faith/fair dealing—drawing from treatises (O’Neal & Thompson; Fletcher) and cases (e.g., McCormick v. Dunn & Black (Wash. App.)). The Court proceeds using a reasonable-expectations lens, while recognizing strict construction (In re Invol. Dissolution of Wiles Bros.) and the Court of Appeals’ caution that oppression is more than “unkind, greedy, and unfair” (Detter v. Miracle Hills Animal Hosp.).
• Reasonable expectations framework and written agreements: The Court relies on authorities explaining that reasonable expectations are judged objectively, as understandings shared at the venture’s inception, and are tempered by a need for business flexibility (Kortum v. Johnson (N.D.); Noble v. Lubrin (Wash. App.)). It lists factors (from Manere v. Collins (Conn. App.)) to evaluate whether an expectation is reasonable—critically including whether it contradicts governing agreements. Treatise guidance (O’Neal & Thompson) supports that signed agreements can affirmatively delimit expectations.
• At-will/no-cause termination and buy-sell provisions: A line of cases from other jurisdictions (Siegel v. Goldstein (E.D. Pa.); Mueller v. Cedar Shore Resort (S.D.); McLaughlin v. Schenck (Utah); Metro Mgmt Svcs v. Van Istendal (N.J.)) stands for the proposition that when shareholder employment and redemption are governed by clear contracts (employment at will or without cause, and redemption at a set formula), claims of oppression/fiduciary breach generally fail absent contrary proof. The Court draws on this consensus to hold the same under Nebraska law.
• Summary judgment burden and method: The Court restates Nebraska’s burden-shifting standard (Clark v. Scheels All Sports) and emphasizes that a movant may meet its prima facie burden either by negating an essential element or showing the nonmovant’s evidence is insufficient to prove an essential element.
• Discovery and continuance standards: The Court reiterates discovery scope and mechanisms (Neb. Ct. R. Disc. §§ 6-326, 6-334, 6-337) and emphasizes the duty to meet and confer (local rule 3‑5). Citing Eddy v. Builders Supply and Lombardo v. Sedlacek, it reviews abuse-of-discretion standards for discovery rulings and § 25-1335 continuances and applies the specificity requirement for continuance affidavits (Gaytan v. Wal-Mart; Lombardo). It approvingly cites the South Dakota Supreme Court’s view (Krueger v. Grinnell Mutual) that failure to meet and confer often warrants denying a motion to compel.

B. The Court’s Legal Reasoning

1. Framing the claims: Noel’s remaining claims boiled down to whether the directors violated fiduciary duties or engaged in oppression by (i) declining to renew his annual employment agreement and (ii) redeeming his shares at book value per bylaws. He also generally complained of practical harm from a noncompetition clause, but he did not press a challenge to its validity in the Supreme Court.
2. Assumed analytical lens: “reasonable expectations.” While not definitively adopting the test, the Court assessed both fiduciary-duty and oppression theories through reasonable expectations, consistent with national trends and the facts (a founding/longstanding shareholder-employee who invested capital and labor).
3. Contracts define expectations: Two controlling writings—(a) the annual employment agreement (terminable “for any reason or no reason” with notice and supermajority board vote) and (b) bylaws (shareholder must be an employee; cessation triggers redemption at a “Fair Market Value” defined as book value with no goodwill)—were undisputed, last updated in 2016 with Noel’s approval as shareholder and director. Noel did not dispute that the book value was calculated correctly, that a mid‑year distribution approved by the board (from which he benefited) reduced year‑end book value, or that the corporation followed the bylaws and agreement to the letter.
4. No reasonable expectation of continued employment: Given the no‑cause termination clause and the annual nature of the employment agreement, the Court agreed that Noel could not, on this record, claim a reasonable expectation of continued employment through age 67 or otherwise. The text message Noel sent in June 2021 asking colleagues to vote not to renew his contract further undercut any claim to a contrary expectation. The Court aligned with authorities recognizing that where a shareholder expressly agrees to no‑cause termination, continued employment is not a reasonable expectation absent more.
5. Book‑value redemption not a breach or oppression: The bylaws were unambiguous, Noel had approved them, and the corporation adhered to the formula (with independent accountant input). Without evidence of bad faith or manipulation, enforcing a pre‑agreed buy‑sell formula is neither a fiduciary breach nor oppression. The Court noted that shareholder interests are not injured where the price is set by prior contract and calculated as agreed.
6. Burden-shifting and absence of counter‑evidence: Pathology Medical met its prima facie burden by citing the governing contracts, undisputed adherence to them, and undisputed book‑value calculations. The burden shifted. Noel offered no admissible evidence of contrary understandings shared by the shareholders at inception, no evidence of a different valuation obligation, and no evidence that the directors acted with bad faith, deceit, or an improper personal purpose. His opposition relied on calls for more discovery rather than material facts.
7. Discovery rulings and continuance:
   • Motion to compel: Most of Noel’s original document requests targeted performance/termination issues already resolved by the first summary‑judgment order. After the court limited discovery to valuation/redemption, Noel served no new requests, noticed no depositions, and did not meet and confer with opposing counsel before moving to compel (in violation of local rule 3‑5). Pathology nonetheless voluntarily produced valuation materials. On this record, the Court found no abuse of discretion in denying the motion to compel.
   • Continuance under § 25‑1335: Noel’s affidavit recited procedural history and asserted that unspecified testimony from managers and members was “required,” but it failed to identify specific facts he sought, why they were essential, or a basis to believe they existed. That is insufficient under Nebraska’s specificity requirement for summary‑judgment continuances. Denial was within the trial court’s discretion.

C. Impact and Practical Implications

• Contract primacy in close-corporation disputes: Noel signals that Nebraska courts will give substantial weight to clear, shareholder‑approved employment and buy‑sell terms when assessing alleged fiduciary breaches or oppression. Parties should expect that “no‑cause” termination provisions and book‑value formulas, if unambiguous and followed in good faith, will generally defeat claims premised on contrary “reasonable expectations.”
• Reasonable expectations are cabined by written agreements: Even though Nebraska has not formally adopted a single test for oppression, Noel effectively makes the point that reasonable expectations must be consistent with written corporate instruments. Unwritten understandings must be proven, shared, and objectively reasonable; unsupported assertions will not forestall summary judgment.
• Drafting guidance for closely held entities:
  • Use explicit employment terms (including “for any reason or no reason” language) and ensure consistent bylaws/operating agreements.
  • Define buy‑sell pricing mechanics precisely (e.g., book value, whether goodwill is included, timing of valuation) and keep contemporaneous valuation records.
  • Document board approvals, distributions, and shareholder votes—these records can be decisive at summary judgment.
• Litigation and discovery practice: Noel underscores the necessity of:
  • Targeted discovery tied to live issues after partial summary judgment narrows a case.
  • Meet‑and‑confer compliance before filing motions to compel.
  • Specific, fact‑focused affidavits for § 25‑1335 continuances that identify the essential evidence sought and show a basis to believe it exists.
• Oppression remedies and valuation fights: Where a shareholder challenges the fairness of a redemption price, successful opposition likely requires evidence of manipulation, breach of the contractual process, or a basis to disregard contractual formulas (e.g., fraud, illegality, or demonstrated bad faith) rather than a mere preference for “fair value” or market‑based approaches.
• Noncompetition clauses: While left undisturbed here (Noel did not pursue the issue on appeal and there was no evidence of enforcement), the district court’s analysis accepted reasonable restrictions aimed at preventing unfair competition. Litigants should build a record of scope, duration, and legitimate business interests if enforceability is put in issue.

Complex Concepts Simplified

• Close corporation: A corporation with a small number of shareholders, no public market for shares, and overlapping roles (owners as employees and managers). Courts often analogize duties among shareholders to partnership duties.
• Fiduciary duty among shareholders: A duty of utmost good faith and loyalty owed among owners; in this context, it requires acting for the corporation’s common benefit and avoiding self-dealing or bad-faith conduct that harms co-owners.
• Oppression (§ 21‑2,197): Not statutorily defined in Nebraska. Common judicial tests include: (1) frustrating a shareholder’s objectively reasonable, central expectations; (2) departing from fair dealing/fair play; or (3) conduct akin to bad-faith breach of fiduciary duty. It is strictly construed and demands more than mere unfairness.
• Reasonable expectations test: Focuses on what the shareholders, objectively and commonly, understood at the venture’s inception, balanced against the need to run the business effectively. Written agreements can set and limit these expectations.
• Book value vs. fair market value vs. fair value:
  • Book value: Accounting net asset value on the company’s books (often excludes goodwill unless specified).
  • Fair market value: Price a willing buyer and seller would agree to in an open market; may include goodwill.
  • Fair value: A statutory or judicial appraisal standard used in certain remedies; often removes discounts for lack of control/marketability. In Noel, “Fair Market Value” for redemption was defined by the bylaws as a book‑value formula without goodwill.
• Summary judgment mechanics: The moving party must present enough evidence to show it would win if uncontroverted; the burden then shifts to the nonmovant to show a genuine factual dispute. A movant can either negate an essential element of the claim or show the opponent lacks sufficient evidence to prove it.
• Continuance to oppose summary judgment (§ 25‑1335): To delay a summary judgment, a party must file an affidavit explaining specifically what essential facts are needed, why they are unavailable, and why they likely exist. Generalized statements are insufficient.
• Meet-and-confer requirement: Before moving to compel discovery, counsel must confer in good faith to resolve disputes. Failure to do so can lead to denial of the motion irrespective of its merits.

Case Background and Procedural Highlights

• Bylaws required shareholder-physicians to remain employees; cessation of employment triggered automatic redemption at a formulaic “Fair Market Value” equating to book value with no goodwill.
• Annual employment agreement expressly allowed either party to decline renewal “for any reason or no reason,” with notice and a two-thirds board vote; Noel helped adopt this language in 2016.
• After performance controversies and Noel’s own June 2021 text urging a vote not to renew his contract, the board voted not to renew for 2022; employment ended December 31, 2021.
• The corporation calculated year-end 2021 book value using reviewed financials; a mid‑year distribution (which Noel approved and from which he benefited) reduced year‑end book value; a redemption check was tendered based on the formula.
• Claims: breach of fiduciary duty; statutory dissolution for oppression; declaratory relief (share value and noncompete). The district court initially granted summary judgment on noncompete enforceability and rejection of fiduciary/oppression theories tied to employment termination, but left valuation/redemption issues for discovery. After limited discovery, the district court granted summary judgment on the remaining claims and denied Noel’s motions to compel and continue. The Supreme Court affirmed across the board.

Conclusion

Noel v. Pathology Medical Services cements a pragmatic principle for Nebraska close corporations: when shareholder-owners knowingly adopt and live under agreements that (i) allow no‑cause nonrenewal of employment and (ii) mandate buybacks at a book‑value formula, those very agreements frame and limit the “reasonable expectations” that can support fiduciary-duty and oppression claims. Absent evidence of bad faith, manipulation, or contrary shared understandings, enforcing such provisions does not constitute oppression or a fiduciary breach.

The opinion also offers a procedural reminder: litigants opposing summary judgment must marshal concrete facts, not mere aspirations for discovery, and must comply with discovery particularity and meet‑and‑confer requirements. Together, these holdings encourage careful upfront drafting of corporate instruments, disciplined corporate governance, and focused litigation practice. In the broader Nebraska legal landscape, Noel strengthens the role of contract in close-corporation disputes and foreshadows that, even if the reasonable-expectations test is later formally adopted, its application will be anchored in the parties’ written bargains.