On March 11, 2014, the Supreme Court of New York, New York County, denied a motion for summary judgment seeking to dismiss a Special Proceeding for Judicial Intervention seeking dissolution of three New York corporations premised upon violations of New York’s Minority Oppression Statute. Quazzo v. 9 Charlton Street Corp., 2014 N.Y. Misc. 1093; N.Y. Slip. Op. 30625 (U) (March 11, 2014).
In Quzzo, the defendants sought dismissal of minority oppression claims pursuant to CPLR §3212(b) (“summary judgment”) because they claimed the minority shareholder was not a shareholder and therefore did not have standing to assert an oppression claim.
The case involved a dispute between a daughter, Christine and her father, Ugo regarding three closely-held New York corporations. Ugo exercised control over the subject corporations since their founding or acquisition. Christina was never employed by the corporations, except for two summers and was not otherwise involved with their operations.
Prior to 2001, Ugo gifted Christine along with her brothers, Marco and Stephen one-third (1/3) of the shares in each corporation. One of the central issues with regard to the standing argument was that Ugo never actually delivered the shares. In support of his motion for summary judgment, Ugo asserted that although he considered gifting shares of the corporations to his children as part of his estate planning and prepared share certificates, he never delivered the shares to the children, and had no intention of transferring any "present interest" in the corporations to them. Instead, Ugo stated that it has always been his understanding that he is the sole shareholder of the corporations and that the shares, if not revoked, would pass upon his death. He also asserted that he has "always exercised complete control" over the corporations.
In opposition to those arguments, Christine set forth evidence that she was a shareholder. She demonstrated that the corporations issued K-1s (tax forms that reports the amounts that are passed through to each party that has an interest in the entity). Moreover, she produced records in which she consented to the form of a shareholder meeting. Furthermore, she was mentioned in the corporations’ meeting minutes where she was identified as a shareholder.
The Court denied Ugo’s motion for summary judgment. It held that the Schedules K-1 constituted evidence, along with the other documents produced by Christine, which raised a triable issue of fact as to her ownership of shares of the corporations. See e.g. Matter of Capizola v Vantage Intl., Ltd., 2 AD3d 843, 845, 770 N.Y.S.2d 395 (2nd Dept 2003) (Schedule K-1 reporting petitioner as shareholder, among other evidence "prove[d] the issuance of stock to petitioner"].) Put another way, Ugo's conclusory assertions of lack of donative intent do not warrant summary judgment in the face of Cristina's documentary evidence to the contrary. (See Pell St. Nineteen Corp. v Yue Er Liu Mah, 243 AD2d 121, 125, 671 N.Y.S.2d 742 (1st Dept 1998), lv dismissed 92 NY2d 947, 704 N.E.2d 230, 681 N.Y.S.2d 477 (1998), lv denied 93 NY2d 808, 712 N.E.2d 1245, 691 N.Y.S.2d 2 (1999).
The Court rejected Ugo’s contention that the lack of delivery of the shares to Cristina demonstrated as a matter of law that no inter vivos gift of the shares was effectuated. The Court found that physical possession of the shares was not dispositive. "The elements necessary for an effective gift are: (1) an intent on the part of the donor to make a present transfer; (2) delivery of the gift, either actual or constructive, to the donee; and (3) acceptance by the donee." Widom v Mittman, 39 AD3d 374, 833 N.Y.S.2d 502(1st Dept 2007). Where a transfer of stock certificates is at issue, "a symbolical delivery" may be sufficient where the facts otherwise show a transfer, as where the certificates are recorded on the books of the company. Matter of Szabo, 10 NY2d 94, 98, 176 N.E.2d 395, 217 N.Y.S.2d 593 (1961). The Court followed the law in the First Department which states "physical delivery of a stock certificate is not a rigid requirement; constructive or symbolic delivery may suffice." Citing, Pell St. Nineteen Corp., 243 AD2d at 126.) Thus, the Court’s found the transferor's retention of shares in a closely held corporation was not conclusive where the transfer was evidenced by gift and corporate tax returns.