Commercial Division Blog

Posted: February 2, 2015 / Categories Commercial, Business Divorce

Shareholders’ Management of Close Corporation Not Enjoined Because it Elected to Purchase Other Shareholder's Shares

On January 14, 2015, Justice Platkin of the Albany County Commercial Division issued a decision in O'Connor v. Coccadotts, Inc., 2015 NY Slip Op. 25013, denying a motion for a preliminary injunction under BCL § 1115, in a judicial dissolution proceeding, where the majority shareholders had elected under BCL § 1118 to purchase the petitioner's shares.

In O'Connor, the 49% owner of three corporations brought a special proceeding for dissolution under BCL § 1104-a based on alleged wrongdoing by the majority owner, and also sought an injunction under BCL § 1118, restraining the majority owner from "taking any actions to change or affect the business, structure, management or value of the [corporations] prior to dissolution." The respondents exercised their right under BCL § 1118 to buyout the petitioner's shares, making the central issue in the case "the fair value" of the corporations, as of the day prior to the filing of the petition. The minority shareholder argued that it was nevertheless entitled to injunctive relief under BCL § 1115. The court disagreed and denied the injunction. Justice Platkin acknowledged that "a BCL § 1115 may issue at any stage of an action or special proceeding under BCL article 11, even following a BCL § 1118 election," but concluded that an injunction was not appropriate in this case:

The Dotts have made a binding election to purchase petitioner/plaintiff's shares for their fair value as of November 24, 2014. As a result, the financial risk of future decisions concerning cupcake production, retail outlets and the like falls squarely on the Dotts and not on petitioner/plaintiff. To be sure, there remains a theoretical possibility that the Dotts could seek leave to withdraw their presumptively irrevocable election based upon "just and equitable considerations" (BCL § 1118 [a]), but they would bear a heavy burden, and the nature and extent of any intervening changes to the business and/or its value certainly could be considered. Accordingly, while there is no dispute that petitioner/plaintiff's hard work over the years contributed
to the success of the enterprise, the Dotts should not be restrained from confronting the business challenges faced by the Coccadots Entities going forward.

(Citations omitted).