In 1993, the New Jersey Supreme Court conferred great powers to Courts when adjudicating minority oppression claims. Brenner v. Berkowitz, 134 N.J. 488 (1993). Last year, the New Jersey Supreme Court conferred even greater equitable powers to Chancery Division Judges deciding intra-company disputes. Sipko v. Koger, Inc., 214 N.J. 364, 383-384 (2013).
The Sipko decision expands the Brenner decision in two ways:
- Trial Courts deciding intra-company disagreements are not confined to the remedies set forth in the Minority Oppression Statute; and
- Trial Courts are not required to make findings of oppression, fraud or illegality when applying equitable remedies to address disputes over closely held companies.
The facts of the Sipko family dispute are simple. George Sipko (“dad”) and his son, Robert, were owners of a closely-held New Jersey corporation, Koger, Inc. The genesis of this family dispute was the family’s disapproval of Robert’s new girlfriend. Robert’s reaction to his parent’s disapproval was to quit his job with Koger, Inc. and give up his shares in the company. The trial court found that Robert was not an oppressed minority shareholder. Perhaps, had dad terminated Robert’s employment there would have been oppression. Moreover, the trial court did not find that dad or the other shareholders had not engaged in illegal or fraudulent activities. Finally, the trial court did not find that dad or other mismanaged the company.
One of the central issues of importance in Sipko was whether or not the trial court could order a buy-out or accounting of a closely-held company without a triggering event (a finding of oppressive conduct, fraud, illegality or mismanagement). The New Jersey Supreme Court found that a showing of a “triggering” event was not required for the trial court to utilize its equitable powers to formulate solutions to disputes within closely held companies. In doing so, the New Jersey Supreme Court held that the enactment of New Jersey’s Minority Oppression Statute “was not intended to supersede the inherent common law power of the Chancery Division to achieve equity. Sipko v. Koger, Inc., 214 N.J. at 384. Furthermore, the New Jersey Supreme Court held that New Jersey’s Oppressed Minority Shareholder Statute “does not limit the equitable power of courts to fashion remedies appropriate to an individual case.” Id.
While, I do not believe the Sipko decision creates a “no fault” provision under New Jersey law for shareholders and members of closely-held New Jersey corporations and limited liability companies to seek a buy-out or other equitable remedies, it certainly gives trial courts greater latitude when deciding intra-company disputes. I believe evidence of “irreconcilable differences” which will affect the shareholders or members ability to work together going forward would be enough for courts to Order a buy-out or employ other equitable remedies to address those problems.
I believe the Sipko decision is important outside of the world of shareholder or member oppression a/k/a “shareholder divorce” because it confirms that Chancery Division Judges hold great powers when addressing disputes which come before them.