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).
An oppressed shareholder claim is not outside the reach of the New Jersey Arbitration Act, the Appellate Division of Superior Court held in litigation that appears to arise in significant part from a broken promise over the lease of a BMW.
The oppressed shareholder action was filed by dentist David Edenbaum, one of the two owners of State of the Art Smiles, P.A., alleging wrongful conduct under the New Jersey Business Corporation Act’s oppressed shareholder provision, N.J.S.A. 14A:12-7.
The allegation of shareholder oppression was made in an action filed in Chancery Division as well is an a counterclaim to a lawsuit filed by the other owner, Teresa Addeiego-Moore, claiming that Edenbuam had breached a separate agreement requiring him to transfer to her a portion of his interest in the practice equal to the leased vehicle in the event that he default on the payments.
Shareholders in New Jersey’s Wild West City cannot distribute assets to resolve an oppressed shareholder action due to an unresolved claim involving an employee’s accidental shooting. The case is a warning, perhaps, that prudence requires some due diligence before a release is signed to ensure that there is not a lurking claim that could upset the settlement.
Oppressed shareholder actions almost invariably end with the compelled purchase and sale of the minority shareholder’s interest. An unresolved claim, however, that could give a third party an interest in the company’s assets may prevent any resolution of the dispute.
Stabile v. Stabile (Stabile v. Stabile.pdf) involved a dispute between the members of several family owned businesses owning a large tract of land in rural Sussex County, New Jersey and operating Wild West City, a western theme park. The businesses also held a liquor license and owned a contiguous restaurant. The litigation among the family members began in September 2005, when James Stabile filed suit alleging various breaches of duties by the directors of the business and minority shareholder oppression. In June 2006, the Court entered an order that the plaintiff was be bought out at fair value. The real estate holdings were appraised at about $11.45 million.
The important battle in an oppressed shareholder lawsuit most often is the battle of the valuation experts. And almost inevitably, the parties will litigate the minority discounts and discounts for lack of control that may or may not be applied to 
the minority interest.
As we previously discussed here, business valuation in a shareholder dispute involving a closely held business is a thorny issue. The shareholders that remain in the closely held business scramble for discounts that reduce the minority’s interest and the departing shareholders try to avoid them as much as possible. What are the rules for application of discounts? Well, there are some litigators who can’t help but smile when the say this, it depends.
Is it ok for lawyers to have FaceBook friends who are judges? Francis Pileggi, a Delaware corporate litigator writes about a recent Ohio professional ethics opinion that says it’s alright that FB friends are different than real friends, which is sometimes true and sometimes not. (Blog Post here)
The problem is that it assumes that FB is used by the lawyer only for personal matters and fails to consider just how much influence someone might wield from their posts. I wouldn’t want my adversary posting matters relevant to my case so that they can be read by the judge, nor would I want him or her to use FB posts to build credibility.
I don’t like reality TV, but I will admit that I thought the fights between the Paul Teutul Sr. and his son, Paul Jr., were the most interesting part of the show. Now that they are involved in litigation over the ownership of the company, I suppose I can take a professional interest.
The complex dynamics between the majority shareholder, Paul Sr., and the minority shareholder, Paul Jr., have all the elements of the disputes that have fractured many a family business – conflict over the direction of the business, claims of misconduct and, of course, charged emotions. You will also find something else in this case that is not all that rare – documents that do not clearly explain how the parties are to deal with sensitive issues.
https://youtu.be/ZgRl_b3GfyI
Without John Murray, the former CEO of Crystex Composites, LLC, the Clifton manufacturer of composite materials would likely not exist. It was Murray who bought the plant in a bankruptcy sale and ultimately ended up with nothing for his efforts. Murray’s failure, however, to assert that he was the rightful owner of the Crystex plant was cut off by application of New Jersey’s Entire Controversy Doctrine, which requires that any claim between the parties to a lawsuit be resolved in one action.
This case has a long history. Murray put together a management team, investors, and arranged financing for the reborn of Crystex in 2003, but he was ousted by the other members of the LLC in May 2004 after failing to make a capital contribution of $200,000. Murray sued, alleging that his pledge of stock to secure a line of credit satisfied his obligation to the business and challenging his removal from the business.
The case went to trial in state court in 2006, with claims of misconduct by both sides. Ultimately, the case turned the issue of whether a Memorandum of Understanding, by which Murray agreed to make his contribution by March 2004 or forfeit his interest, was enforceable. Murray lost, with the court finding that he had “never acquired an interest in Crystex.” Murray appealed, but was unable to reverse the trial court’s decision on the core issue of his ownership. Opinion here.
The Business Divorce Law Report