Typically, when oppression is demonstrated New Jersey Chancery Courts will Order either the corporation itself or the majority shareholders to purchase the minority’s interest in the closely held company for “fair value.” In Muellenberg v. Bikon Corporation, 143 N.J. 168 (1996), the New Jersey Supreme Court considered whether a Court had the authority to order the majority shareholders to sell their shares to a minority shareholder whose rights have been oppressed by the majority.  The New Jersey Supreme Court affirmed the trial court’s Order requiring the minority to purchase the majority shares.  Id. at 182-183. 
 
The case involved three shareholders who formed a closely held New Jersey company, Bikon Corp. (“Bikon”).  Mr. Muellenberg was a mechanical engineer and inventor. He held more than 80 patents.  His goal was to establish a family of companies related through common ownership and contract to market his invented products throughout the world. Messrs. Muellenberg, Burg and Passerini incorporated Bikon with the purpose of marketing Muellenberg’s inventions.  Around the time they incorporated Bikon, the shareholders executed a License Agreement and a Distribution Agreement which granted Bikon the exclusive right to sell Muellenberg’s inventions in the United States.  In consideration for those contractual rights, Muellenberg received quarterly distributions of five percent of the gross sales of Bikon.  Minority shareholder Burg handled the day-to-day business of Bikon. The company operated out of Burg’s New Jersey home.   Despite the success of the company, disputes arose amongst the shareholders.  Those disputes centered around the introduction of new products into Bikon’s line, the patent and trademark royalty fees, the rent Burg paid to himself for the company’s use of his home, and Muellenberg’s desire to see detailed reports of sales and activities. 
 
Those disputes led to Muellenberg commencing litigation against Bikon seeking dissolution of Bikon and other relief. Shortly after Muellenberg commenced the litigation, he called a shareholders’ meeting.  As a result of Burg’s refusal to attend, only Muellenberg and Passerini attended and participated in the post-litigation meeting.  At that meeting, Muellenberg and Passerini voted to declare a dividend, to retain an outside accountant to determine accrued royalties, to require the signatures of Muellenberg and Burg or Muellenberg alone for future bank withdrawals, and to require Board approval for the selection of suppliers and purchases over $1,000.  Assuming that they gained control of Bikon, Muellenberg and Passerini dismissed most of the litigation except for the prayer to purchase Burg’s minority interest in Bikon. Around that time, they terminated Burg’s employment with Bikon. 
 
Burg filed counterclaims against Muellenberg and Passerini asserting that he was an oppressed minority shareholder and petitioned the Court to allow him to buy-out the majority’s shares. 
 
As a result of the trial, the Chancery Judge found that Burg was an oppressed minority shareholder. Considering Burg’s reasonable expectations, the Trial Court found that Burg was oppressed.  It found “that at the January 20, 1993, shareholders’ meeting Muellenberg and Passerini had begun efforts to freeze out Burg.  They had declared a $180,000 dividend that they should have know would deprive Bikon of needed cash to operate and thus take away Burg’s ability to perform successfully as generally manager.  In addition, despite the lack of showing of abuse by Mr. Burg in operating the company, they began to strip Burg of his day-to-day control as general manager by resolving that bank account withdrawals should be made only by plaintiff or by joint signatures of plaintiff and Defendant Burg.  And, finally the court found that the majority directors, as plaintiffs acknowledged by plaintiff’s counsel in summation intended to vote Burg out as a director and terminate him as general manager and employee of the company.”  Id. at 173-174. 
 
The Trial Court weighed the equities and found that “Burg had devoted the most productive years of his life to building up the company.” Id. at 181-182.  Moreover, it found as a result of Burg’s efforts Bikon’s sales increased steadily over time.  Id. The Court also considered the fact that Burg could “not reasonably have expected that after ten years as general manager” be frozen out.  Id.  In doing so, it allowed Burg, the minority, to buy out Muellenberg and Passerini (the majority shareholders). 
 
In addressing the central question, whether or not the Trial Court could Order the majority to sell to the minority, the New Jersey Supreme Court began by discussing the reasons behind the minority oppression statute. The New Jersey Supreme Court recognized the vulnerabilities of being a minority shareholder in a closely held company.  Id. at 176-180. The Muellenberg Court followed precedent by allowing the Trial Court to consider those vulnerabilities when crafting an appropriate and equitable remedy.   
 
Next, the Muellenberg Court considered whether or not Burg was oppressed. The New Jersey Supreme Court agreed with the Trial Court in its findings that Burg was oppressed.  In previous blog posts, I discussed that the termination of a shareholders’ employment and reduction of their responsibilities within the company could constitute oppression. The Muellenberg decision is yet another example of a Court finding that the termination of a shareholder’s employment, and the reduction of their responsibilities, constitutes oppression.  The Court held, in addition “to the security of long-term employment and the prospect of financial return in the form of salary, the expectation includes a voice in the operation and management of the business and the formulation of its plans for future advancement.”  Id. at 181 (citing, Ingle v. Glamore Motor Sales, 535 N.E.2d 1311, 1319 (NY 1989) (Hancock, J., dissenting)). 
 
Finally, the New Jersey Supreme Court found that the minority oppression statute gives the Trial Court great latitude in fashioning an appropriate remedy. Id. at 183 (“courts are not limited to statutory remedies, but have a wide variety of equitable remedies available to them”). After considering all of those factors, the Muellenberg Court upheld the Trial Court’s decision Ordering the minority to purchase the shares of the majority shareholders. 
 
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.