When Piazza filed a lawsuit seeking judicial dissolution of the company based on oppression, Gioia Jr. responded that the action triggered Piazza’s obligation to sell his shares under the shareholders’ agreement. Indeed, the shareholders’ agreement provided that a judicial dissolution proceeding would be deemed a voluntary offer to sell and trigger buyout rights. The court said, however, that such provision is not controlling “when the sale is the result of claimed majority oppression or other wrongdoing—in effect, a forced buyout.” Under New York Business Corporations Law, there are two types of judicial dissolution proceedings—one under Section 1104 where there is corporate deadlock and another under Section 1104-a “to provide a remedy to minority shareholders who have suffered abuse at the hands of the majority and lacked a means for salvaging the value of their investment.” For a shareholder agreement to trigger buyout rights, as Gioia Jr. argued, the court said that the language of the shareholder agreement must explicitly provide that the buyout will be triggered by a Section 1104-a proceeding, which the shareholders’ agreement here did not. Thus, the court concluded that the dissolution proceeding did not trigger Gioia Jr.’s buyout rights.
Gioia Jr. also argued that Piazza agreed in the shareholders’ agreement that the last stipulated price provided a fair return on his investment. The court disagreed. The court doubted that the value of the shares established at previous meetings of directors and shareholders reflected a fair price, given that the price was fixed more than eight years ago and the company has been very profitable since then. The court also noted that Piazza has raised issues of dissipation of corporate assets, corporate waste, diversion of corporate opportunities, and overcompensation and excessive expense spending by Gioia Jr., which warranted some kind of accounting. Accordingly, the court gave Gioia Jr. a 30-day window within which to make an election to purchase Piazza’s shares at their fair value upon the terms and conditions to be approved by the court, taking into account any appropriate adjustment or surcharge on Gioia Jr.
Last, but not least, Gioia Jr. argued that Piazza’s allegations of oppression and looting were untrue. The court said that a minority shareholder is subject to oppression when the majority shareholder’s conduct “defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the [minority shareholder’s] decision to join the venture.” The court said that oppressive conduct may be found where “a minority shareholder has been excluded from participation in corporate affairs or management for no legitimate business reason or personal animus,” or “corporate policies are changed by the majority to prevent the minority shareholder from receiving a reasonable return on [his or her] investment.” The court found that Piazza’s detailed factual allegations regarding Gioia Jr.’s looting of corporate assets, usurpation of corporate opportunities, and exclusion of Piazza from the company’s management adequately stated a claim for oppression and judicial dissolution. As mentioned earlier, however, the court decided to allow Gioia Jr. to make an election to purchase Piazza’s shares at their fair value under the court’s supervision and suspended the dissolution proceeding.
So what do we learn from Piazza v. Gioia? First of all, if you recall, the standard of shareholder oppression under New York law seems to be pretty similar to that under Texas and Maryland laws we discussed earlier. Second of all, a minority shareholder who wants to file a judicial dissolution proceeding would be well advised to check his or her shareholder agreement and the applicable state law so as not to inadvertently trigger a forced buyout.
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 See generally Matter of Piazza v. Gioia, 2016 NY Slip. Op. 31430(U) (Sup. Ct. Kings Cty. July 21, 2016). Unless otherwise specified, all references to the case are to this citation.