Directors concealed $40 million PE talks while shareholder sold his stake

A founder sold his shares for $3.4 million, then the company closed a $40 million private equity deal. Nobody told him it was coming.

Robert Boyd started Northern Biomedical Research years ago. In 2019, he sold most of it to four buyers but kept 16% of the shares. He moved to Idaho while the new owners ran things from Michigan, and the relationship got rocky.

By 2020, the new directors wanted to expand the business but needed money. They started looking at financing options, including bank loans and private equity. Boyd, still a shareholder, heard almost nothing about any of this.

That June, one of the directors, Dean Haan, flew out to Idaho. They talked about buying out Boyd's remaining stake and discussed financing in general terms. Boyd remembers Haan mentioning a possible bank loan. Haan did not tell Boyd the company would soon be exploring private equity in earnest.

By fall, things were moving. The directors began reaching out to potential equity partners. In November, they discussed a possible merger or equity deal with another company called Worldwide Primates. Around the same time, a former business partner connected them with Avista Capital Partners. By early December, they had signed a confidentiality agreement with Avista. On December 8, they held an hour-long introductory call. Ten days later, on December 18, Avista proposed investing $30 to $35 million for half the company.

But December 18 came too late for Boyd. He had signed the sale papers on December 17, agreeing to sell his 1,600 shares for roughly $3.4 million. The price was based on an accounting firm's valuation pegging the company at about $21 million.

The following spring, Avista invested $40 million for half of Northern Biomedical, valuing the company at $80 million. Boyd had walked away with a fraction of what his stake might have fetched just months later.

He sued everyone, claiming they broke securities laws and violated their duties as directors by hiding the Avista discussions and their pursuit of private equity financing.

The case landed in federal court, and the judge dismissed it entirely. Boyd appealed.

On January 15, 2026, the Sixth Circuit Court of Appeals handed down a split decision in Robert Boyd v. Northern Biomedical Research, Inc. that should matter to anyone advising clients with stakes in private companies.

The appeals court said the federal securities claims fail. Under federal law, preliminary talks with a private equity firm do not count as material information that must be disclosed. As of December 17, the Avista relationship was too uncertain. No firm offers, no agreed terms, just early discussions and expressions of interest.

But here is where it gets interesting for advisors. The court reversed on the state law claims, finding that Michigan holds directors of closely held companies to a higher standard than federal securities law requires. Under Michigan law, directors owe something closer to a partnership duty. They must disclose facts that might influence a shareholder's decision, not just information that would substantially change the overall picture.

A jury could reasonably decide that knowing about Avista's interest and the equity financing discussions might have changed Boyd's mind about selling, even though federal law did not require disclosure.

The case now goes back for trial on whether the directors violated Michigan fiduciary duties and committed fraud by staying silent.

The takeaway is clear: meeting federal securities law requirements does not mean you are safe under state law, especially in closely held companies where the duties run deeper.