It’s simply in the nature of things that business divorce litigants tend to accuse one another of all manner of heinous, dastardly misdeeds. Phrases like “oppression,” “fraud,” “deceit,” “theft,” “siphoning” of assets, “diversion” of opportunities, etc., are the norm. As a litigant, if you make those kinds of allegations, and they turn out to be unsuccessful, or you withdraw them, can you be sued for defamation? Staten Island Supreme Court Justice Wayne M. Ozzi considered that question in Seneca v Cangro, 2018 NY Slip Op 33404(U) [Sup Ct Richmond County Nov. 27, 2018], a lawsuit pitting an uncle against his nephews over claims they defamed him while suing to dissolve three family-owned entities.

The Family Businesses

In 1962, ancestors of the current antagonists formed C. Seneca Construction, Inc. (the “Corporation”), a real property holding, management, and construction company. In 2004, the family expanded its business with the formation of two additional real property companies organized as LLCs (the “LLCs”). Pursuant to written operating agreements, one of which you can read here, Anthony Seneca was a 25% member of the LLCs, and his nephews, Emil and Carlo Cangro, collectively owned 25%. Anthony, Emil, and Carlo allegedly owned shares of stock in the Corporation in the same percentages. Continue Reading Sue for Dissolution – Get Sued for Defamation?

Last week, this blog wrote about a decision by Manhattan Commercial Division Justice Saliann Scarpulla in the burgeoning Yu family melee, in that case pitting one brother against the other and their sister over dissolution of two single-asset real estate holding LLCs. In her decision, Justice Scarpulla denied dissolution of the LLCs, despite the plaintiff’s allegations that his brother and sister had a personal “vendetta” against him, which they carried out by amending the operating agreement to remove the plaintiff as a manager, authorizing a mandatory capital, and, when he was unable to meet the capital call, foreclosing on his membership interest.

This week, we look at a companion decision by Justice Scarpulla, issued the same day as the first, expanding the intra-family brouhaha to include the three siblings’ parents. In Matter of Yu v Bong Yu, 2018 NY Slip Op 32009(U) [Sup Ct, NY County Aug. 15, 2018], the court considered the important but novel question of what impact, if any, does a shareholder’s assignment of voting rights under a stock pledge agreement have on his or her standing to sue for statutory dissolution of the business as well as under the common law. Continue Reading Stock Pledge Agreement Defeats Minority Shareholder’s Standing to Sue for Statutory But Not Common-Law Dissolution

When you want to sue to dissolve a business in New York on behalf of the estate of a deceased shareholder, to which court should you go: Supreme or Surrogate’s Court?

For many practitioners, the Commercial Division of the Supreme Court, a specialized court in New York focusing on complex business-related disputes, is the venue of choice. Most types of disputes have a minimum monetary threshold for eligibility in the Commercial Division. Manhattan’s threshold is the highest – $500,000.  The rules of eligibility for cases to be heard in the Commercial Division, which you can read here, have three exceptions to the monetary threshold – one of which lists “[d]issolution of corporations, partnerships, limited liability companies, limited liability partnerships and joint ventures — without consideration of the monetary threshold.” In part because there is no monetary threshold for dissolution proceedings, practitioners in the several New York counties that have a Commercial Division usually litigate business dissolution disputes in the Commercial Division.

But once in a blue moon a dissolution case will wind up in the Surrogate’s Court. Continue Reading Surrogate’s Court Declines to Order Demise of Fashion Business

There are a couple of lessons to be learned from a recent decision by Nassau County Supreme Court Justice Daniel Palmieri in a quirky case called The Woods Knife Corp. v. Eastman Machine Co., 2009 NY Slip Op 32069(U) (Sup Ct Nassau County Sept. 2, 2009).

The first is, a minority shareholder who also does business with the corporation, and who fails to secure safeguards in the shareholders’ agreement concerning the commencement of lawsuits by the corporation regarding their business dealings, cannot count on shareholder dissension issues to forestall enforcement of the corporation’s commercial rights.

The second lesson is, if you’re going to seek involuntary corporate dissolution, you must follow the procedural dictates of Section 1106 of the Business Corporation Law, which requires commencement of a special proceeding by petition and order to show cause with publication and service upon necessary parties including the state tax commission.  A counterclaim for judicial  dissolution in an existing litigation won’t cut it.

The case involves two companies, Woods Knife Corporation and Eastman Machine Company, both formed many decades ago.  Eastman, owned by the Stevenson family, manufactures cloth cutting machines.  Woods Knife, owned 49% by the Stevenson family and 51% by the Woods family, manufactures blades used in Eastman’s machines.  The original agreement contained Eastman’s pledge to "make every effort" to purchase its blade requirements from Woods Knife, but also permitted Woods Knife to sell to others.  Nonetheless, over time Woods Knife became wholly dependent on Eastman for sales of its blades.

Continue Reading Dissolution Counterclaim Fails to Stall Action for Goods Sold and Delivered