oppressed shareholder

October 4, 2016

Business Divorce New York Style

Reading through a recent court opinion out of the New York Supreme Court, I am struck by the way the law has diverged in corporate governance litigation. There are two distinctly different approaches to the business divorce. Crossing the Hudson can make a world of difference in operating a closely held business.

Business Divorce State by State

Understanding the different approaches taken by the courts of different states is something that should be considered by business owners not just when they form the business, but as they work through the inevitable conflicts that are part of running a business.

November 2, 2012

Buy-Sell Agreement to Arbitrate is Enforceable

by Jay R. McDaniel, Esq.

Dispute Related to Repurchase of Shares Under Buy-Sell Agreement Subject to Agreement to Arbitrate

Agreements to arbitrate are frequently added to buy-sell agreements and other corporate governance contracts. These agreements will be enforceable in nearly all circumstances and the parties should be certain that arbitration – rather than litigation in court – is what they really want.

In a recent appeal from a court order refusing to enforce an agreement to arbitrate after the parties had already been in litigation for two years, the Appellate Division of Superior Court rejected arguments that the arbitration clause was narrowly drawn. Gatta v. Gatta, Docket No. A-3161-11T (App. Div. October 26, 2012). Because the subject matter of the dispute was also the subject matter of the contract, the agreement to arbitrate was enforceable notwithstanding the delay in asserting the right.

Shareholder Seeks to Enforce Arbitration Right

The appeal was brought by Defendant Joseph Gatta from the trial court’s denial of an application to compel arbitration under a shareholders agreement. Gatta and the company, Joseph Gatta & Sons, Inc., were sued by Gatta’s brother, Anthony Gatta, one of four shareholders in the business. Anthony sued after he was fired and the company did not respond to his demands to purchase his interest.

January 16, 2012

Oppressed Shareholder Claim is Arbitrable

by Jay R. McDaniel, Esq.

Disputes Between Shareholders Not Exempt from Arbitration Act

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.

Arbitration Clause in Shareholder Agreement

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.

January 6, 2012

Business Divorce: Five Considerations You Should Consider

by Jay R. McDaniel, Esq.

It’s the Wednesday afternoon before Thanksgiving and the phone rings with a new client. The situation in the office has become an emergency. Either someone has been locked out or someone needs to be locked out, or someone is walking out the door with a key client. Many of our cases begin as emergencies.

The dispute between LLC members, shareholders or partners erupts into a lawsuit without warning, or so it seems, and without planning. Here are five considerations that are important to success in a litigated business divorce.

1. Understand the Statutory Framework.

October 17, 2011

Shareholder Dispute Settlement Barred by Accidental Shooting

by Jay R. McDaniel, Esq.

Oppressed Shareholder Settlement Void

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.

Purchase of Minority Interest

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.

May 5, 2011

Minority and Marketability Discounts in Oppressed Shareholder Cases

by Jay R. McDaniel, Esq.

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.

Minority Interest