Minority shareholders in private companies not infrequently grow frustrated and impatient with their inability to either set the direction for the organization or liquidate their interests at what they deem fair value. Often, those minority holders represent a younger generation who believe that it is time for the old guard to stop hanging on, pass the torch, and exit the scene gracefully. Think of Kendall Roy’s efforts to wrest control of Waystar Royco from his father, Logan, in the TV show "Succession." Absent a smooth transition or a satisfactory liquidity event, litigation can ensue, with the minority claiming oppression at the hands of the majority or an impermissible squeeze-out from the enterprise.

Minority shareholder actions are relatively common today, but oppression and squeeze-out suits are not a modern invention. One hundred twenty-five years ago, on Feb. 14, 1900, above an advertisement touting the benefits of sarsaparilla as a “remedy for dyspepsia, rheumatism, catarrh and all other ailments due to impure or impoverished blood,” the headline in the Pittsburgh Commercial Gazette announced the filing of a momentous minority shareholder oppression action: “Frick Brings Suit Against Carnegie.”

The names are titanic, and the stakes were enormous. Henry Clay Frick and Andrew Carnegie, along with Vanderbilt, Rockefeller, Morgan, and Gould, embodied the enormous expansion of industrialization and wealth in America in the late 19th and early 20th centuries, and in February 1900, the Carnegie Steel Co. was one of—if not the most—profitable enterprises in the world.

Yet Carnegie Steel was a private, closely held limited partnership. By filing his “Bill in Equity” in the Allegheny County Court of Common Pleas, Frick publicly revealed the rivalries, jealousies, resentment, and ambition that often animate private company shareholder fights and battles for succession.

Fourteen years Frick’s senior, Carnegie had started out in Civil War-era America as an ambitious young man working as a clerk in Pittsburgh for the Pennsylvania Railroad. With insights and connections from his railroad work, Carnegie saw and early on seized industrial opportunities, first in iron and then in steel. By the late 1880s, his fortune already in hand, Carnegie’s focus began to turn to philanthropy, and he spent most of his time not near his mills in Pittsburgh but, instead, in New York City and in his native Scotland. He needed a talented younger man to run his business day to day. He turned to Henry Clay Frick.

As Carnegie was vertically integrating his iron and steel businesses, Carnegie Steel acquired control of the H.C. Frick Coke Co. That acquisition not only gave Carnegie access to fuel for his furnaces, it also brought Frick himself more squarely into Carnegie’s orbit. Carnegie saw in Frick the man to take over day-to-day management of Carnegie’s business empire. Carnegie put Frick in charge of the business, and Frick became a minority shareholder in Carnegie Steel.

The personable and voluble Carnegie long sought warm personal relations with his protege. Frick, with a harder, icier temperament, kept Carnegie at arm’s length personally. Yet, their shared enterprises flourished. With Frick as president and Carnegie as controlling shareholder, Carnegie Steel’s size and profit skyrocketed.

The company’s financial success did not immunize Carnegie and Frick from strife. The Homestead Strike of 1892 is often cited as the turning point in their relationship. With Carnegie overseas, Frick called in Pinkerton detectives to oust striking workers from Carnegie’s Homestead Works. A gun battle left 12 dead and subjected Carnegie and Frick to widespread criticism. Frick resented Carnegie’s after-the-fact claim that he would have handled the situation differently and better than Frick had.

Tensions continued to build, with Frick absorbing the slings, arrows, and stresses of management, while Carnegie, in Frick’s view, alternated between disengagement and ill-informed meddling. Frick literally absorbed two bullets, too; an anarchist shot Frick in his office in July 1892. Their dispute came to a head in 1899 when Carnegie forced Frick out of the company and claimed that, under a so-called “iron-clad agreement” among the Carnegie Steel partners, Frick was entitled to only “book value” (about $5 million) for his minority interest.

Frick sued, challenging the enforceability of the iron-clad agreement and accusing Carnegie of, in modern parlance, a squeeze-out. Frick claimed entitlement to fair market value (upwards of $30 million) for his shares. Frick pulled no punches in his filing:

• He accused Carnegie of having “malevolent motives” toward Frick;
• He accused Carnegie of being absent and neglectful, asserting that Carnegie “spent much of his time abroad [and] rarely participated in the current management of the business.” He went so far as to assert that the legendary Carnegie was “so engaged in other occupations and diversions that … he cannot properly manage and carry on” the business that bore his name;
• He put in the public record his contention that privately held Carnegie Steel’s assets exceeded $250 million in value (over $7 billion in today’s dollars); and
• He claimed that Carnegie used economic leverage that he held over other partners to compel them to join in the scheme to force Frick out and take his shares at a fraction of their true value. 

Carnegie and the other defendants may have had multiple potentially viable defenses to Frick’s claims, most of them based on written and course-of-dealing evidence that supported the existence of the iron-clad agreement. We will never know who ultimately would have won on the merits. In fairly short order after Frick filed the lawsuit, the parties arranged for a meeting in Atlantic City. There, likely wishing to avoid extended public attention on the enormously profitable but controversial business, the parties reached a settlement.

Frick received shares worth over $30 million in a new enterprise that formally combined Carnegie Steel and Frick Coke. Just one year later, in March 1901, Carnegie did what Frick had earlier urged—he cashed out. In a deal brokered by the equally legendary J. Pierpont Morgan, Carnegie and his partners sold their interests for $480 million, with Carnegie himself receiving $226 million. Morgan renamed the company U.S. Steel and congratulated Carnegie on becoming the richest man in the world. Reportedly and perhaps apocryphally, months after the deal went through, Carnegie told Morgan that Carnegie believed he had made a mistake by setting the price at $480 million and instead should have demanded $580 million. Morgan purportedly replied, “If you had, I’d have paid it.”

In 1901, construction began on the elegant Frick Building in the great city of Pittsburgh. Frick made sure that his new building was taller and cast a literal shadow on the neighboring Carnegie Building. Then and now, immediately across the street from the Frick Building sits the Allegheny County Court of Common Pleas Courthouse.

Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.