Articles Posted in Minority Oppression

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  • The business judgment rule insulates decisions made in good faith and in the best interests of the enterprise from being subject to judicial second guessing ordinary business decisions

  • Majority shareholders that failed to pay dividends to a non-employee minority shareholders in valid exercise of business judgment rule did not engage in wrongful conduct.

  • Common law dissolution under New York law is available only for a palpable breach of duty so egregious as to disqualify the majority from exercising rights over dissolution.

  • A minority shareholder subject to a counterclaim has a right to be indemnified against legal fees and an advance of funds for expenses.

  • A trial court may preclude individual defendants from using corporate funds to defend an oppressed minority shareholder lawsuit.

     

FeldmeierThe decision of controlling shareholders that a corporation will not pay dividends to a former employee and director is subject to the business judgment rule, in this case defeating the shareholder’s claim of oppressive conduct by the majority.

The Fourth Department of the Appellate Division of New York Supreme Court rejected the claim brought by a minority shareholder of a family-owned equipment business in Syracuse, applying the presumption that an action taken in good faith by a business in the best interests of the business should be free from second-guessing by the minority and the Court.   (Opinion in Feldmeier v. Feldmeier Equipment, Inc. here.) Continue reading

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  • 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-300x166Statutes: 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

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  • 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

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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

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Minority Sharholder AttorneysIt 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

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Oppressed Minority Shareholder Litigation AttorneyAn 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.

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Oppressed Shareholder Valuation in Sale of Plant Business
The general rule is that a court should not apply discounts for marketability or lack of control (the later known as the minority discount) unless there is some unfairness or wrongdoing among the parties. Still, in the world of oppressed minority shareholder litigation, there is always some allegation of wrongdoing, so the question of discounts, or not, is invariably part of the ruling in any court-ordered valuation.

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

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business litigation attorneysHere 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

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Conflict and Negotiation Case Study: The Importance of Sincerity
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.

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New York | New Jersey Oppressed Shareholder Limited Liability Company atorneys
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.

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Jay R. McDaniel, Esq.
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Weiner Law Group LLP
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