Scott I. Unger, Shareholder and member of Stark & Stark’s Litigation and Shareholder Oppression groups, will present the Bucks County Bar Association CLE Seminar “Litigating Shareholder/ Member/ Partnership Disputes in P.A. and N.J.,” held in Doylestown, PA on Wednesday, July 31, 2013. The seminar, which begins at 12:30pm, will discuss the prosecution and defense of minority oppression litigation and corporate divorces. It will also explore the differences between corporations, limited liability companies and partnerships. The seminar is approved for 2.5 substantive credits and .05 Ethics Credits. For more information or to register for the course, click here.
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Stark & Stark Shareholder Scott I. Unger Published in U.S.1
Scott I. Unger, Shareholder in Stark & Stark’s Litigation and Shareholder & Partner Disputes Groups, authored the article, “What is Minority Oppression?” published in U.S. 1 Newspaper on June 5th, 2013.
The article discusses the real meaning behind minority oppression and how companies go about trying to terminate shareholders who have the smallest amount of share in the company. Mr. Unger discusses the techniques involved during termination of the minority shareholder’s employment, excessive compensation and withholding distributions. Additionally, Mr. Unger describes the different obstacles that a minority shareholder may face when challenging the majority’s failure to issue dividends.
To read the full article, click here.
Oppression is Found
The Minority Oppression statute sets forth four remedies which a Court “may” order to remedy oppressive conduct. The Minority Oppression Statute provides that a Court may appoint a custodian, appoint a provisional director, order the sale of the corporation’s stock (per the statute) or enter a judgment dissolving the corporation. Id. The Statutory power of a Court to Order a stock sale is described in further detail in N.J.S.A. 14A:12-7(8). On its face, it appears that N.J.S.A. 14A:12-7(8) does not authorize a mandatory purchase by someone otherwise unwilling to buy the stock. Nevertheless, a Court may use it’s equitable powers to Order that shareholder to buy another shareholder’s stock if oppression is found. Bonavita v. Corbo, 300 N.J. Super. 179, 197-198 (Ch. Div. 1996). That is because in Brenner v. Berkowitz, 139 N.J. 488, 512-514 (1993), the New Jersey Supreme Court held that when a statutory violation such as oppression occurs, Courts retain their equitable discretion to fashion remedies. Hence, if a Court finds that the majority oppressed the minority it could order the majority to purchase the minority shares for “fair value,” even if the majority does not want to buy that interest.
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.
Courts May Use Equitable Powers to Order A Mandatory Purchase of Stock if Oppression is Found
The New Jersey Revised Uniform Limited Liability Company Act Provides for Remedies to Redress Oppression
The New Jersey Revised Uniform Limited Liability Company Act gives Courts discretion to remedy oppressive conduct. If a court determines that a member or controlling member has, is or will act illegally, fraudulently, harmfully or oppressively towards a member, a Court may: (1) appoint a custodian or provisional manager; (2) order the sale of a member’s LLC interest to the LLC or the members (N.J.S.A. 42:2C-48(b)); (3) dissolve the company; and (4) award legal fees and other expenses if a party acted vexatiously or otherwise not in good faith (N.J.S.A. 42:2C-48(c)).
The New Jersey Supreme Court in Brenner v. Berkowitz, 134 N.J. 488, 512 (1993) held that in addressing corporate minority oppression, Courts were not limited to the statutory remedies contained in the statute. That means at least within the context of a shareholder dispute within a corporate entity, Courts may utilize its common law powers to fashion an equitable remedy. At this point, it is unclear whether or not the same equitable powers will be given to Courts when confronted with remedying an oppressive conduct within an LLC. Based upon my review of the Brenner decision, I believe Chancery Courts will have the same equitable powers to remedy oppression whether the entity is a corporation or an LLC. That is because the Supreme Court in Brenner held “when a statutory violation occurs, a court retains its discretion to fashion equitable remedies.” Brenner v. Berkowitz, 134 N.J. at 514.
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.
Minority Oppression: New Jersey Supreme Court Affirms Chancery Court’s Order Allowing the Minority Shareholder to buy-out the Majority Shareholder’s interests
50% Shareholder Can Assert Claims of Oppression and Breach of Fiduciary Duty Against Another 50% Shareholder
Stark & Stark Shareholder Discusses The Minority Oppression Statute
Internal Affairs Doctrine of Corporation Not Applied in Another New Jersey Minority Oppression Case
- the needs of the interstate and international systems;
- the relevant policies of the forum;
- the relevant polices of other interested states and the relative interests of those states in the determination of the particular issue;
- the protection of justified expectations;
- the basic policies underlying the particular field of law;
- the certainty, predictability and uniformity of result; and
- the ease in the determination of justice.
Court gives guidance on valuing a start-up company under minority oppression statute
As I’ve stated in many of previous blog posts valuation is one of the most important issues in minority oppression litigation. The majority wants the valuation to come in lower, so they are required to pay less for the minority’s shares. On the other hand, the minority wants the valuation to come in high, because they want to receive more for their interest in the closely held company.