It’s hard enough to explain to clients in business divorce cases the complicated statutory and judge-made law governing the substantive rights of the parties, for example, what constitutes shareholder oppression, or what kind of deadlock between 50/50 owners warrants dissolution, or how a stock interest gets valued in a buy-out proceeding.
But try explaining to clients the confoundingly intricate rules of civil procedure that dictate how a lawsuit must be prosecuted and defended, and, well, let’s just say you tend to get a lot of blank stares in return.
Whatever clients do or don’t comprehend, lawyers know that the rules of civil procedure present pitfalls and opportunities that can make or break a case, regardless of the more meaningful questions about who did what to whom, and which side should win or lose on the merits.
So primarily for all you lawyers reading this, I present below a series of short summaries of recent court decisions addressing a potpourri of procedural issues in dissolution cases, including service of the petition, time to answer, consolidation and intervention, and seeking unpleaded relief.
Service of Petition
Matter of Digeser (Gould Erectors & Rigging, Inc.), 2013 NY Slip Op 51348(U) (Sup Ct Albany County Aug. 19, 2013) (Richard M. Platkin, J.) (read here). A minority shareholder filed a petition by order to show cause in a special proceeding to dissolve two corporations. The petition, which was filed with the County Clerk, named as respondents the corporations and the majority shareholder. The order to show cause directed service on all respondents, which was timely done, however the respondents moved to dismiss for lack of jurisdiction based on petitioner’s failure to serve them with the petition. The court denied the motion, noting that Business Corporation Law (BCL) § 1106 does not mandate service of the petition, representing a “departure from the usual mode of commencing a special proceeding.” The court also observed that, per appellate case law, jurisdiction is acquired over the corporation and “all persons interested in the corporation” upon compliance with § 1106’s notice provisions, and that filing the petition with the County Clerk “afford[s] interested parties the opportunity to review the petition.”
Matter of Soluri v. Satriale, Short Form Judgment, Index No. 2847/13 (Sup Ct Queens County July 15, 2013) (Howard G. Lane, J.) (read here). The petitioner brought a special proceeding to dissolve a limited liability company under LLC Law § 702. The court noted that LLC Law Article 7 has no counterpart to BCL § 1106 and therefore service of the petition must be made in compliance with Article 4 of the Civil Practice Law and Rules (CPLR). The petitioner served the named respondent, who filed no opposition to the petition, by substitute service on a person of suitable age and discretion. The court nonetheless dismissed the petition because of the petitioner’s failure to file an affidavit of service with the Clerk of the Court as required by statute to complete service, and also failed to file any proof of service on the LLC.
Time to Answer Petition
Matter of Behedo (Brother’s Staffing, Inc.) Short Form Order, Index No. 23745/12 (Sup Ct Queens County June 18, 2013) (Robert J. McDonald, J.) (read here). In December 2012, a 50% shareholder filed a petition for judicial dissolution. The respondent 50% shareholder timely moved to dismiss the petition, which motion the court denied. The petitioner sought entry of a default judgment based on respondent’s non-service of an answer to the petition within 30 days allegedly as required by CPLR § 403(b). The court denied the default motion on the ground that respondent’s time to file an answer to the petition automatically was stayed until the determination of his pre-answer motion to dismiss the petition.
Consolidation of Dissolution Proceeding with Related Action
Feinberg v. Silverberg, Decision and Order, Index No. 3120-11 (Sup Ct Nassau County May 17, 2013) (Vito M. DeStefano, J.) (read here). The plaintiff 50% shareholder brought a plenary action asserting damages claims against the other 50% shareholder who subsequently filed a separate, special proceeding to dissolve the corporation. The plaintiff moved to consolidate the two cases into a single action. The court granted the motion to the extent of ordering a joint trial of the two cases, reasoning that the plaintiff’s allegations of the defendant’s bad faith conduct in the plenary action also constitute a defense to dissolution in the special proceeding.
Matter of Behedo (Brother’s Staffing, Inc.), 39 Misc 3d 1241 (Sup Ct Queens County 2013) (Robert J. McDonald, J.) (read here). Plaintiff 50% shareholder filed a plenary action against the defendant 50% shareholder asserting fraud and other claims for damages and injunctive relief. The plaintiff later commenced a separate special proceeding to dissolve the corporation, which he moved to consolidate with his plenary action. The court granted the motion, finding that the interests of justice and judicial economy will be served by consolidation of the two actions for joint trial given the common allegations underlying the two matters.
Oliveri v. Re, 2013 NY Slip Op 51062(U) (Sup Ct Kings County July 5, 2013) (David I. Schmidt, J.) (read here). In May 2011, the court granted on respondent’s consent the petitioning 50% shareholder’s request to dissolve a corporation whose sole asset was realty leased to a separate corporation owned by the respondent’s wife. The court also ordered an accounting and directed the corporation’s realty be sold at auction. Over a year later, the wife moved to intervene in the dissolution proceeding, to enforce an oral promise made by the petitioner (her father) to transfer the realty to her. The court denied the wife’s motion, finding that the request for intervention was untimely; that as a non-shareholder she lacked standing to intervene; and that her proposed claim to enforce an oral promise to convey realty was barred by the statute of frauds.
Request for Unpleaded Relief
Matter of McCoun (Railroad Bagel Express, Inc.), Short Form Order, Index No. 11-24578 (Sup Ct Suffolk County July 17, 2013) (Thomas F. Whelan, J.) (read here). The petitioner 50% shareholder filed a proceeding for judicial dissolution under BCL § 1104-a based on oppression and also under BCL § 1104 based on deadlock. The respondent 50% shareholder filed opposition and an answer contesting petitioner’s entitlement to judicial dissolution on either ground. Subsequently, the respondent moved for an order dissolving the corporation based on deadlock, and the petitioner cross-moved to dissolve based on oppression. The court denied both motions. As to respondent’s motion, the court based its denial primarily on the absence of any demand for such relief in respondent’s pleading, concluding that “the relief demanded is not available to the respondent under CPLR Articles 4 or 32 or BCL § 1104.”