Tuesday, August 8, 2017

SHAREHOLDER DISPUTES IN FAMILY CLOSE CORPORATIONS



Matter of Twin Bay Vil., Inc. v Kasian 2017 NY Slip Op 06024 Decided on August 3, 2017 Appellate Division, Third Department:

"In 1957, the Chomiak family began operating Twin Bay Village, a seasonal summer resort on the shores of Lake George. In 1970, the family formed Twin Bay Village, Inc., a closely-held corporation, for the purpose of operating the resort. At its inception, 100 shares of corporate stock were issued, and those shares were split among Stephan Chomiak and Eleonora Chomiak and their two sons, Leo Chomiak and petitioner Vladimir Chomiak. Over the ensuing years, the division of the corporate shares changed and, by 2004, Valdimir Chomiak's son and daughter, petitioners Leon Chomiak and Leonora Chomiak, were the beneficial owners of a combined 48 shares, and Leo Chomiak and his two daughters, [*2]respondents Tatiana Chomiak Kasian and Tamara Chomiak, owned the remaining 52 shares. In addition to these changes in ownership, the level of involvement of petitioners in operating the resort and managing the corporation changed over the years. Although petitioners were initially involved in helping to run the resort in the 1980s, their involvement thereafter declined, leaving the responsibility for operating the resort and managing the corporation entirely to respondents. In 2009, after years of running the corporation without petitioners' involvement, respondents attempted to force petitioners to sell their shares back to the corporation. After petitioners refused, they commenced this proceeding pursuant to Business Corporation Law § 1104-a seeking judicial dissolution of the corporation."

The court upheld the lower court's finding that the business should be dissolved:

"Business Corporation Law § 1104-a permits a court to dissolve a closely-held corporation where, as is relevant here, those in control of the corporation have engaged in "oppressive actions toward the complaining shareholders" or have "looted, wasted, or diverted" corporate assets for noncorporate purposes (Business Corporation Law § 1104-a [a] [1], [2]; see Matter of Penepent Corp., 96 NY2d 186, 191 [2001]; Matter of Clever Innovations, Inc.[Dooley], 94 AD3d 1174, 1176 [2012]; Matter of Quail Aero Serv., 300 AD2d 800, 802 [2002]). "Although the term 'oppressive actions' is not statutorily defined, the Court of Appeals has held that 'oppression should be deemed to arise . . . when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner[s'] decision to join the venture'" (Matter of Upstate Med. Assoc., 292 AD2d 732, 733 [2002], quoting Matter of Kemp & Beatley [Gardstein], 64 NY2d 63, 73 [1984]; accord Matter of Gould Erectors & Rigging, Inc., 146 AD3d at 1129). Contrary to respondents' [*4]contention, this standard is equally applicable to passive shareholders, such as petitioners, inasmuch as the standard is not focused on the complaining shareholders' level of involvement with the corporation but, rather, their reasonable expectations and whether those expectations were defeated (see Matter of Kemp & Beatley [Gardstein], 64 NY2d at 72-73; Matter of Parveen, 259 AD2d 389, 391 [1999])."

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