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Current Developments in the Commercial Divisions of the
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Posted: March 23, 2014

Denying Petitioner is Shareholder Can Constitute Oppressive Conduct Justifying Corporate Dissolution

On March 11, 2014, Justice Friedman of the New York County Commercial Division issued a decision in Quazzo v. 9 Charlton St. Corp., 2014 NY Slip Op. 30625(U), discussing the standard for corporate dissolution based on oppression.

In Quazzo, the petitioner sought, among other things, to dissolve a New York corporation of which she claimed to be a shareholder. The respondents moved to dismiss the dissolution claim on the ground that the petitioner had not established that she was the subjected to oppression by the respondents. The court disagreed, explaining:

The petition seeks dissolution of the corporations pursuant to Business Corporation Law § 1104-a(a)(1) and (a)(2). This statute provides, in relevant part, as follows:

(a) The holders of shares representing twenty percent or more of the votes of all outstanding shares of a corporation . . . , entitled to vote in an election of directors may present a petition of dissolution on one or more of the following grounds:

(1) The directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders;
(2) 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.

With respect to § 1104-a(a)(1), [the petitioner] alleges that she has been denied access to all corporate information and records, has never received any remuneration or distributions from her ownership in the Corporations, and her very status as a minority shareholder has been denied. Respondents contend that, even assuming that all of petitioner’s allegations are true, they do not state a claim of oppression as a matter of law.

Oppression should be deemed to arise only when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner’s decision to join the venture. Contrary to respondents’ contention, the facts that [the petitioner] did not invest capital, but rather allegedly was gifted the shares, and was not involved in management do not preclude her claim that she had reasonable expectations of economic benefit as a result of ownership of shares in the corporations.

Respondents cite a number of authorities that have held that a shareholder’s reasonable expectations have not been frustrated where the shareholder, who had never sought a role in management of the corporation, was denied a role, or where the shareholder, who had never been employed by the corporation, was denied employment. However, respondents do not, on this inadequately briefed record, demonstrate as a matter of law that an oppression claim may not be maintained based on the very denial of a petitioner’s status as a shareholder. Indeed, there appears to be some authority that has recognized a claim on this basis.

(Internal quotations and citations omitted) (emphasis added).

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