The shareholder oppression claim under BCL 1104-a has a unique relationship with claims for money damages.

A minority shareholder petitioning for dissolution under BCL 1104-a must establish that the majority shareholders have engaged in “illegal, fraudulent or oppressive actions,” or that the “property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation.”

Based on that standard, it’s easy to imagine conduct by the majority that both meets the criteria for dissolution and constitutes a separate tort compensable with money damages (for instance, a claim for the majority’s breach of fiduciary duty).  For that reason, it’s very common to see a dissolution petition coupled with money damages claims, all arising out of the same conduct. 

But where the money damages claims are filed before the dissolution petition, a plaintiff might be forced to litigate those to completion prior to pursuing their dissolution petition.  That’s the tough lesson learned by the petitioner of a dissolution proceeding brought under BCL 1104-a, in Ramirez v Issa, 2024 N.Y. Slip Op. 33488[U] [NY County 2024], the subject of this week’s post.

The Chef’s Table at Brooklyn Fare.

Manhattan Fare Corporation owns and operates the Chef’s Table at Brooklyn Fare.  The restaurant’s former executive chef Caesar Ramirez and his wife own 50% of the Corporation’s shares.  Moe Issa, the owner of the Brooklyn Fare, owns the remaining 50%. 

Hidden in the back of a Hell’s Kitchen grocery store, the Chef’s Table at Brooklyn Fare for years sat atop the fine dining world: it was one of the few restaurants earning a Michelin 3-star Rating.  With those stars, business was booming.  According to court filings, shareholders in 2022 took home a combined $6 million in distributions. 

But a July 2023 falling out between Ramirez and Issa closed the restaurant’s doors.  According to Issa’s version of the story, he fired Ramirez because Ramirez had stolen more than $100,000 of dishware, oven parts, and wine cases.  Ramirez denied the theft and claimed that his firing was part of Issa’s broader gambit to take the Chef’s Table for himself.

The Damages Action.

Ramirez fired the first legal shot with a complaint in Kings County, asserting a bevy of direct and derivative claims against Issa.  Ramirez sought almost $1 million in allegedly unpaid compensation, the return of certain equipment that he had personally purchased, damages for defamation, and—on behalf of the Corporation—damages for Issa’s alleged breach of his fiduciary duties to the Corporation.

Things got ugly fast.  About two weeks after Ramirez filed the lawsuit, Issa apparently filed a complaint with the New York City Police Department for the missing corporate property, which led to Ramirez’s arrest and a search of his apartment (see here).     

While diners witnessed the impeccably organized and almost impossibly fast-paced kitchen choreography at the Chef’s Table, my glance at the damages action docket tells me the litigation to date has been both more chaotic and far more sluggish.  Since last summer, the action has been bogged with injunction requests, motions to enforce/quash third-party subpoenas, a disqualification motion, and bitter disputes about everything from the cancellation of reservations to ownership of the restaurant’s Instagram account.  Various interim orders have been entered and skirmishes have been won and lost, but the case remains young.

The Dissolution Petition, Respondents’ Motion to Stay.

As the Damages Action approached its first birthday, Ramirez commenced a special proceeding in New York County for the dissolution of the Corporation pursuant to BCL 1104-a.  Ramirez alleged that Issa’s conduct in firing Ramirez (i.e., depriving him of at least some of the economic benefits of share ownership) and withholding from him Corporation financials was conduct worthy of dissolution pursuant to BCL 1104-a(1) (shareholder oppression) and 1104-a(2) (looting or wasting corporate assets).

The dissolution petition also alleged that Issa reopened the restaurant with a new chef and culinary team, excluded Ramirez from the premises, refused to make distributions, and has denied Ramirez access to any information concerning the current operations of the Corporation.

Ramirez’s decision to commence a separate proceeding for dissolution is explained by sections 1104-a and 1112 of the BCL.  The former requires that a dissolution request be presented as “a petition of dissolution,” which is different than a claim in a damages case.  The latter requires that the petition be brought “in the judicial district in which the office of the corporation is located.”  Amending the complaint in the Damages Action to seek dissolution was not an option; Ramirez had no choice but to bring a separate action, in Manhattan, for dissolution.   

Issa moved to stay the dissolution proceeding pending the outcome of the Brooklyn-based Damages Action.  Issa argued that the dissolution proceeding turned on the same facts as the Damages Action: Ramirez’s firing, the closing of the restaurant, and the Corporation’s alleged failure to pay Ramirez his salary and distributions.

Opposing the request for a stay, Ramirez argued that despite some overlap in the underlying allegations, staying the dissolution proceeding was inappropriate because Ramirez sought completely different relief, against different parties.  In the dissolution proceeding he sought dissolution of the Corporation; in the Damages Action he sought money damages against Issa.

Justice Cohen Stays Dissolution Petition in Favor of Damages Action.

By Decision and Order dated October 1, New York County Commercial Division Justice Joel Cohen entered an order staying the dissolution proceeding “pending resolution of the King’s County Action.”

Considering the factors that courts traditionally cite in applications for a discretionary stay (overlapping proofs, potential for inconsistent rulings, and the potential waste of judicial resources), Justice Cohen found a sufficient identity of issues to justify staying the dissolution proceeding:

Here, the parties in the Kings County Action are the same as the parties in this action. Further, while the issues are not identical, they are overlapping. In the King’s County Action, petitioners seek damages for breach of the parties’ Stockholders Agreement, related torts, and equitable relief concerning control of the Company. Thus, both this action and the prior pending Kings County Action depend on whether Ramirez was stealing Company property in breach of his fiduciary duties and contractual obligations of good faith and fair dealing, warranting suspension of Issa’s contract performance and Ramirez’s termination and exclusion from the business.”

While it is true, noted the Court, that the Damages Action and the dissolution proceeding seek different relief against different parties, that reality “does not refute Respondent’s argument that the underlying alleged basis for dissolution turns on the same fact and legal issues raised in the Kings County Action.”

Ramifications.

Years ago, I wrote about the adequate alternative remedies prong to a BCL 1104-a proceeding, discussing a Queens County case called Hammad v Jamal Kamal Corp, 2020 N.Y. Slip Op 51092(U).  That post considered what should happen when the complained-of conduct warranting dissolution was a discrete act that was better compensable with money damages.  After finding that the respondents’ reclassification of certain payments as loans to the petitioner constituted shareholder oppression, the court in that case held that the appropriate remedy was not dissolution, but rather a direction that respondents repay petitioner the improperly reclassified amount. 

Here, if Ramirez had only sought dissolution based on the discrete acts of malfeasance set forth in the Damages Action, the decision to stay the dissolution proceeding might have brought the parties to the same result as in Hammad. 

But given the current state of the Corporation, there’s little doubt that the decision to stay the dissolution proceeding—at least to the extent it focuses on ongoing conduct—leaves Ramirez with a cold dish: Issa has reopened the restaurant and excluded him from the premises, profits, and books and records of the Corporation.  Regardless of whether Ramirez was properly fired or not, and regardless of whether Issa has breached his fiduciary duty, a stay of the dissolution proceeding leaves Ramirez unable—at least for now—to monetize his status as an excluded 50% shareholder of the reopened restaurant. 

For that reason, I wonder if a stay would have been granted if the dissolution petition drew a clearer line between discrete acts of malfeasance that are the subject of the Damages Action (withheld salary, misappropriated assets, etc.) and the continuous wrong of Issa’s continued operation of the Corporation to the exclusion of Ramirez. 

It’s also exceedingly likely that Ramirez could have avoided this result by commencing his Damages Action in Manhattan.  In that case, a subsequently filed dissolution proceeding would have been designated a “Related Action” to the Damages Action and been assigned to the same justice.  With the same justice overseeing both the Damages Action and the dissolution proceeding, the matters presumably could have been efficiently advanced and heard at the same time.

Either way, the case highlights a critical strategic consideration for counsel concerning the timing of and relationship between a dissolution petition and damages claims.  Damages claims may forestall a subsequent dissolution petition based on the same alleged conduct.