In order to establish a right to relief under New Jersey’s Minority Oppression Statute, a party must first establish that “the directors or those in control have acted fraudulently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders, directors, officers, or employees.” N.J.S.A. 14A:12-7(c). Although, the Minority Oppression Statute is “interpreted broadly to provide remedies for the distinct problems of close corporations,” Brenner v. Berkowitz, 134 N.J. 488, 508 (1993), not every illegal, fraudulent, oppressive or unfair act warrants a grant of the relief in the form of a court-ordered buy-out of the shareholder’s interest. Id. at 512-513. “In addition to demonstrating fraudulent or illegal conduct, mismanagement, or abuse of authority, or oppressive or unfair conduct, a Plaintiff must also demonstrate a nexus between the misconduct and the minority shareholder or her interest in the corporation.” Id. A violation of the law with minimal impact on the shareholder’s interest or reasonable expectations does not warrant relief. Id.
The nexus between the misconduct and harm to the shareholder may be established in several ways. First, the minority shareholder may show “acts that affect or jeopardize a shareholder’s stock interest,” whether or not targeted at the complaining shareholder alone. Id. Second, the minority shareholder may show acts that thwart their reasonable expectations, given “the special circumstances, arrangements and personal relationships that…generate certain expectations amongst the shareholders concerning their respective roles. Id. at 509.
Thus, not only must a minority shareholder prove that the majority acted unfairly, illegally or oppressively, the party seeking redress under New Jersey’s minority oppression statute must demonstrate a causal connection between those acts and their affect on the shareholder or the shareholder’s interests in the company. As I’ve alluded to in previous blog postings, there are no hard and fast rules as to what constitutes minority oppression. The statute and the case law interpreting the same, require that the Court consider all circumstances relating to the alleged oppressive conduct and its impact on the complaining shareholder and the corporation.
Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.