At this wintry beginning of the new year I like to scour last year’s court decisions in business divorce cases to see if I overlooked any noteworthy ones. The following case summaries are the result, featuring a pair of decisions involving deadlock and oppressed minority shareholder disputes, and another pair of decisions involving receivership applications.
Matter of McKeown (Image Collision, Ltd.), 94 AD3d 1445, 2012 NY Slip Op 03016 (4th Dept Apr. 20, 2012). This is a deadlock dissolution case between 50/50 shareholders in which the Rochester-based Appellate Division, Fourth Department, affirmed a post-trial decision granting the petitioner’s application for dissolution, awarding the respondent the continued use of the business, and awarding the petitioner 70% of the value of the corporation. The court rejected the respondent’s challenge to the trial court’s valuation of the shares based on the expert testimony of the expert appraisers, and also rejected his challenge to the petitioner’s expert’s qualifications for failure to object during the trial. The court also disagreed with respondent’s contention that the petitioner himself engaged in oppressive conduct by setting up another business before suing for dissolution after respondent locked him out of the business, The petitioner only did so, the court noted, in response to respondent’s oppressive acts including buying the premises upon which the 50/50 corporation conducted business and then raising the rent to siphon away corporate profits. The decision unfortunately does not shed light on the trial court’s unusual remedy, i.e., awarding a buyout in a deadlock case under Business Corporation Law §1104 instead of liquidating the corporation, and giving the 50% petitioner 70% of the corporation’s value.
Matter of Solorin (Santo Domingo Car Service Inc.), 2012 NY Slip Op 33095(U) (Sup Ct Queens County Oct. 3, 2012) (Augustus C. Agate, J.). This case involves a dissolution petition brought by a 25% shareholder alleging oppression under Business Corporation Law §1104-a. The petitioner alleged that the respondent shareholders locked him out of the business, failed to distribute profits or reimburse his expenses, blocked his access to company records, and removed him from the company’s bank account. The respondents opposed the petition on several grounds including the petitioner’s lack of standing under §1104-a based on his alleged stock ownership of less than the minimum 20% required by the statute. Respondents contended that the shareholder meeting minutes relied on by petitioner to establish his 25% ownership were a fabrication, and that his ownership was only 17%. They also alleged that the distribution of profits was temporarily suspended for legitimate business reasons and that petitioner had “rejected” payments once the distributions resumed. The court ruled that the parties’ conflicting submissions created questions of fact requiring a hearing on the issue of petitioner’s standing to seek dissolution and, assuming standing, whether the respondents engaged in oppressive conduct towards the petitioner.
Fein v. Signom, Mem. Decision, Index No. 603085/07 (Sup Ct NY County Dec. 14, 2012) (Debra A. James, J.). This case involves a dispute among tenant-shareholders of a co-op corporation that owns a small residential apartment building in Greenwich Village. The plaintiff brought a derivative action for breach of fiduciary duty, claiming the controlling shareholder had not paid co-op liabilities and failed to pay his own maintenance. The court noted that although the complaint “sounded” in one for dissolution under BCL §1104-a, it only sought appointment of a receiver, declaratory and injunctive relief. The court denied plaintiff’s motion for appointment of a temporary receiver, finding that the evidence plaintiff presented of unpaid co-op bills and maintenance was stale and/or refuted by documentary evidence, and that plaintiff “failed to provide even minimal evidence” that the co-op is insolvent or that there was any danger of dissipation of its assets.
Vella v. Performance Mechanical Corp., Short Form Order, Index No. 5546/12 (Sup Ct Nassau County Nov. 21, 2012) (Stephen A. Bucaria, J.). In a post last November (read here) I wrote about a prior decision in a related LLC dissolution case involving the same parties. This later decision involves a suit among the shareholders of the operating business housed in the realty owned by the LLC. The plaintiff’s complaint sought declaratory and other relief challenging certain stock transfers and other actions by the defendant shareholders removing plaintiff as an officer and director. The plaintiff moved for appointment of a temporary receiver, which the court denied. According to the court, the plaintiff’s “conclusory” allegations of mismanagement by the defendants did not constitute the “clear and convincing evidence of irreparable loss or waste” required to justify a receivership.