Minority Oppression

July 31, 2018

Single Business or Amalgamation Theory Applies to Related Businesses

The Single Business Theory permits a court to treat related businesses as though they were one enterprise.
Courts apply the single business theory in rare cases to prevent injustice.

Pertuis v. Front Roe Rests., Inc., 2018 S.C. LEXIS 85 (2018)

Cases-of-Note-Corporations-300x166 Statutes: S.C. Code Ann. § 33-18-420; S.C. Code Ann. § 33-15-105; S.C. Code Ann. § 33-18-200 to -210; S.C. Code Ann. § 33-18-220; S.C. Code Ann. § 33-18-230; N.C. Gen. Stat. § 55-14-31

An action by minority shareholder and manager of three restaurants, two organized in North and one in South Carolina, seeking valuation and purchase of interests as oppressed shareholder, and alleging that each of three closely held “s corporations” are a single business entity located in South Carolina. On appeal, the South Carolina Supreme Court recognizes the amalgamation theory under which multiple enterprises may be treated as single entity, but reverses because plaintiff was not assigned the burden of proof and because a South Carolina court has no authority to consider the internal affairs of a foreign corporation. (Opinion here.) Continue reading

July 11, 2018

Shareholder Oppression is Frustration of Minority Shareholder’s Reasonable Expectations

by Jay R. McDaniel, Esq.

This seminal case by the New Jersey Supreme Court identifies minority oppression as the frustration of a shareholder’s reasonable expectations.
A court may order the compelled purchase of a shareholder’s interest as a remedy for shareholder oppression when it is the only practical alternative to judicial dissolution.
The minority shareholder seeking to force the purchase of shares must show a connection between the oppressive conduct of the majority and the minority’s interest as a shareholder.

Brenner v. Berkowitz, 134 NJ 488 (1993)

Cases-of-Note-Corporations-300x166

Statutes: N.J.S.A. 14A:12-7(1)(c)

Facts: Partners Resnick and Berkowitz formed successful company. Members of both families were employed in the business. When Resnick died, his shares were distributed to family members, including his daughter, the plaintiff Brenner. Relations between the two family members soured and Brenner’s son was fired. Brenner alleged illegal and oppressive conduct.

Trial court found that Brenner’s expectation was solely as director and investor, not in management of business affairs. Trial court found that some conduct of majority was illegal, but that it was not directed to plaintiff. The oppression was insufficient to trigger the statute. Continue reading

September 13, 2017

Failure to Object to Business Practices Waives Minority Shareholder Rights

by Jay R. McDaniel, Esq.

Cases-of-Note-Corporations

Digital Camera International, Ltd. v. Antebi, et al., 11-cv-1823 (E.D.N,.Y. July 13, 2017)

Statutes: N.J.S.A. 14A:12-7(1)(c)

Facts:Shareholders of a New Jersey corporation participated in a variety of activities that would be classified as oppressive behavior, including the payment of persona expenses with corporate funds, operating a competing business, insider contracts at inflated prices and corporate payments of personal tax liabilities

August 22, 2017

Minority Shareholder’s Silence Waives Oppression Claim

by Jay R. McDaniel, Esq.

It was the stuff of which a good minority oppression claim is easily cooked up. The party in control of the corporation had used the corporate bank accounts as his personal piggy bank while operating a competing business, paid himself inflated office rents and bankrolled an extra-marital affair with money taken from the business.

None of that, however, could carry the day in a lawsuit brought by the minority shareholders of a New Jersey corporation because they waited years to complain.

Minority Shareholder Oppression Alleged by Ousted Officer of Closely Held Corporation

June 28, 2017

Oppressed Shareholder Wins $750,000 Fee Award

by Jay R. McDaniel, Esq.

An oppressed minority shareholder was awarded approximately $750,000 in attorneys fees and expert expenses — some eight times the amount of the buyout — even though the majority had good reason to fire him from his position as the corporation’s CEO.

Fee Award Under Oppressed Shareholder Statute to Selling Shareholder

This case is a 14-year-old litigation involving a dispute between the family members of a family-owned business, and the outsider executive who was brought in to take over the management of the corporation. The relationship quickly deteriorated amid allegations of misappropriation and sexual harassment in the workplace.

March 30, 2017

Valuation of Corporation in Oppressed Shareholder Includes Marketability Discount

by Jay R. McDaniel, Esq.

Oppressed Shareholder Valuation in Sale of Plant Business

A trial court in Union County recently applied a 25 percent discount in the purchase of a 50% share of a family business after a 35-day trial. The net result was that the defendant in the case took significantly less for the acquisition of his shares in a family owned business than might have been available if there was not a finding of wrongdoing. Parker v. Parker, Docket No. UNN-C-108-13 (Chancery December 22, 2016) The parties involved in a business divorce litigation need to be cognizant that the allegations of bad behavior may have a significant effect on the ultimate determination of value made by a court.

Discounts Reduce Value of Buyout in Family Business Dispute

December 14, 2016

Seven Business Litigation Best Practices that Address the Lack of Civil Trials

by Jay R. McDaniel, Esq.

Here is the hard reality. The chances that your case, or any case, will get to a real trial on the merits is way less than one in 10. The truth is that only between two and five cases out of 100 will be resolved with a trial.

What does that mean for a party drawn into civil litigation? The statistics point to a group of “best practices” that effective litigation counsel should employ. It is a blend of efficient trial preparation, motion practice, management of discovery and, perhaps most of all, advanced negotiation skills. We review some of those here as a starting point for developing a case strategy.

Civil Trials in Business Litigation is a Rare Event

October 10, 2016

An Apology at the Bargaining Table

by Jay R. McDaniel, Esq.

One of the hardest things about being an effective negotiator is the ability to leave your ego at the door. We need to listen, not impress.

Seasoned Negotiators, Effective Apologies

As negotiation trainer Jim Camp warns, an effective negotiator learns how to let the other side be “ok,” even when you’re not. The fact is that no matter how well we listen, no matter how well we employ our negotiator’s tool kit to learn the real interests of the other side, we’re going to make mistakes.

October 4, 2016

Business Divorce New York Style

by Jay R. McDaniel, Esq.

Reading through a recent court opinion out of the New York Supreme Court, I am struck by the way the law has diverged in corporate governance litigation. There are two distinctly different approaches to the business divorce. Crossing the Hudson can make a world of difference in operating a closely held business.

Business Divorce State by State

Understanding the different approaches taken by the courts of different states is something that should be considered by business owners not just when they form the business, but as they work through the inevitable conflicts that are part of running a business.

October 10, 2012

Buyout Agreement Enforced

by Jay R. McDaniel, Esq.

Fraudulent Inducement Claims Rejected by Court

In Shareholder Buyout Dispute

The broad release language contained in a buyout agreement is enforced, despite claims of fraudulent inducement, affirms the Appellate Division of Superior Court in Marino v. Twin Rivers Podiatry, P.A., Docket No. A-5630-10T1 (May 19, 2012).

The Single Business Theory permits a court to treat related businesses as though they were one enterprise.

Courts apply the single business theory in rare cases to prevent injustice.

Pertuis v. Front Roe Rests., Inc., 2018 S.C. LEXIS 85 (2018)

This seminal case by the New Jersey Supreme Court identifies minority oppression as the frustration of a shareholder’s reasonable expectations.

A court may order the compelled purchase of a shareholder’s interest as a remedy for shareholder oppression when it is the only practical alternative to judicial dissolution.

The minority shareholder seeking to force the purchase of shares must show a connection between the oppressive conduct of the majority and the minority’s interest as a shareholder.

Brenner v. Berkowitz, 134 NJ 488 (1993)

Digital Camera International, Ltd. v. Antebi, et al., 11-cv-1823 (E.D.N,.Y. July 13, 2017)

Minority Shareholder Oppression Alleged by Ousted Officer of Closely Held Corporation

Fee Award Under Oppressed Shareholder Statute to Selling Shareholder

Discounts Reduce Value of Buyout in Family Business Dispute

Civil Trials in Business Litigation is a Rare Event

Seasoned Negotiators, Effective Apologies

Business Divorce State by State

Fraudulent Inducement Claims Rejected by Court In Shareholder Buyout Dispute

Fraudulent Inducement Claims Rejected by Court

In Shareholder Buyout Dispute