How long is New York’s Statute of Limitations for a Breach of Fiduciary duty claim? It depends.
New York does not have one statute of limitations governing all breach of fiduciary duty claims. Rather, it has two: three and six years.
Pennsylvania Appellate Court Upholds Appointment of Custodial Receiver after Finding a Shareholder Was Oppressed
In Adler v. Tauberg, 881 A.2d 1267 (Pa. Super. 2005), a Pennsylvania Appellate Court upheld an Order of the Court of Common Pleas of Allegheny County appointing Lawrence N. Adler, M.D., (“Adler”), a fifty percent shareholder, director and president of a closely-held Pennsylvania corporation, as custodian to manage the business affairs of the corporation after finding that the defendants oppressed him.
Pennsylvania Superior Court Decision Required Claims to be filed “Derivatively” As Opposed to Individually on Behalf of a Shareholder
On February 5, 2014, a Superior Court of Pennsylvania issued an interesting and important decision explaining when claims must be brought derivatively as opposed to individually in the name of a shareholder. Hill v. Ofalt, 85 A.3d 540 (Pa. Super. Ct. 2014).
A “derivative” claim is a lawsuit brought by a shareholder on behalf of the corporation against a third-party. The central issue in Hill v. Ofalt, was whether or not Thomas Hill (“Hill”) a 50% shareholder of a closely held Pennsylvania corporation called Millstone Restaurant Company, Inc. (“Millstone”) could assert direct claims alleging breach of contract, breach of fiduciary duty, unjust enrichment, and conversion and seeking declaratory relief all against the other 50% shareholder, Defendant Ronald Ofalt (“Ofalt”). After considering the nature of those claims, the Superior Court of Pennsylvania held that Hill could not assert those claims directly. In other words, the Pennsylvania Appellate Court agreed with the Trial Court that those claims belonged to the corporation and therefore had to be asserted derivatively. Nevertheless, the Hill Court reversed the Trial Court’s denial of Hill’s motion to amend the complaint, so as to assert derivative claims.
The decision is important and interesting because it provides a good explanation as to when claims must be brought derivatively as opposed to individually in Pennsylvania. In summary, the analysis hinges on who suffered the complained damages as alleged in the complaint. In this case, the Plaintiff alleged that Ofalt was stealing from the corporation. Moreover, Hill alleged that Ofalt stole trustee taxes from the company. Furthermore, Hill alleged as a result of Ofalt’s unlawful activities the corporation eventually went out of business exposing Hill to personal financial peril because he personally guaranteed the corporation’s mortgage.
The Superior Court of Pennsylvania analyzed each of the claims raised in the complaint. The Hill Court held, “under established Pennsylvania law, a shareholder does not have standing to institute a direct suit for "a harm [that is] peculiar to the corporation and that is only indirectly injurious to the shareholder." Hill v. Ofalt, 85 A.3d at 548 (quoting, Reifsnyder v. Pgh. Outdoor Adver. Co., 405 Pa. 142, 173 A.2d 319, 321 (Pa. 1961)).” Rather, such a claim belongs to, and is an asset of, the corporation. Id. “To have standing to sue individually, the shareholder must allege a direct, personal injury – that is independent of any injury to the corporation – and the shareholder must be entitled to receive the benefit of any recovery.” Hill v. Ofalt, 85 A.3d at 549. Because the Court concluded the primary injuries suffered as a result of the alleged unlawful activities were borne by the corporation the Court held the claims must be brought derivatively.
The decision in dicta (a part of the opinion which went beyond the facts of the case) discussed whether or not a Pennsylvania shareholder could individually assert minority oppression claims under Pennsylvania law. Id. at 550. The Court relied upon previously decided cases and said that an oppressed minority shareholder could assert direct claims against the majority shareholder. Id. (considering, Feber v. Am. Lamp. Corp., 469 A.2d 1046, 1050 (Pa. 1983); Viener v. Jacobs, 834 A.2d 546, 556 (Pa. Super. 2003). Because Hill did not assert oppression claim against Ofalt, the Court did not reverse.
One of the unique things about litigating in Pennsylvania is “preliminary objections.” Pennsylvania requires litigants to plead with specificity (as opposed to most states which are merely notice pleading states). If the case is not plead with specificity it is subject to dismissal by way of preliminary objections. Hence, when asserting minority oppression claims in a Pennsylvania action it is extremely important to set forth specific ways the minority shareholder was injured (as opposed to the corporation).
Finally, when drafting or responding to a complaint filed in Pennsylvania state court, it is imperative that the claim be properly asserted derivatively or individually. The Hill decision provides guidance on this issue.
New York Court of Appeals Denies Applicability of Minority Discounts In Oppression Cases
A 20% or greater shareholder in a closely held New York corporation may commence a special action for dissolution of the corporation on the grounds that those in control have either committed “illegal, fraudulent or oppressive actions toward the complaining shareholder” or have “looted, wasted or diverted for non-corporate purposes the corporation’s assets.”
New Jersey Supreme Court Confers Greater Equitable Powers to Chancery Court Judges When Adjudicating Intra-Company Disputes
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 inter-company disputes. Sipko v. Koger, Inc., 214 N.J. 364, 383-384 (2013).
New York County Supreme Court Justice Denied Majority Shareholders’ Motion to Dismiss Minority Oppression Claim
On March 11, 2014, the Supreme Court of New York, New York County, denied a motion for summary judgment seeking to dismiss a Special Proceeding for Judicial Intervention seeking dissolution of three New York corporations premised upon violations of New York’s Minority Oppression Statute. Quazzo v. 9 Charlton Street Corp., 2014 N.Y. Misc. 1093; N.Y. Slip. Op. 30625 (U) (March 11, 2014).
New York Minority Oppression Statute Permits Oppressed Minority Shareholders to Commence Special Proceeding for Judicial Dissolution
An oppressed minority shareholder in a New York corporation may commence a special proceeding for judicial dissolution Business Corporation Law § 1104-a (a)(1) and (a)(2).
NJ Appellate Division Affords Oppressed Minority Shareholders More Protections to Maintain the Status Quo During the Pendency of the Litigation
In 1982, the New Jersey Supreme Court in the oft-cited decision Crowe v. DeGioia, 90 N.J. 126 (1982), set forth the factors Courts should consider when petitioned for injunctive relief. For the past thirty-plus years, litigants arguing in favor of the issuance of an interlocutory injunction asserted their clients have demonstrated by “clear and convincing evidence” that: (1) there is no adequate remedy at law and the irreparable harm to be suffered in the absence of injunctive relief is substantial and imminent; (2) there is a reasonable probability of success on the merits; (3) the equities and hardships favors injunctive relief; and (4) the public interest will not be harmed. Id. at 520; McKenzie v. Corzine, 396 N.J. Super. 405, 414 (App. Div. 2007).
Seminal Ohio Case Protects Oppressed Minority Shareholders
The Ohio Supreme Court in the seminal case Crosby v. Beam, 47 Ohio St. 3d 105 (1989) set forth protections for Ohio minority shareholders. Minority shareholders sought redress via the Ohio courts. In their complaint, the minority shareholders alleged that the majority shareholders had oppressed them by: (1) awarding themselves unreasonable salaries; (2) using corporate property for their personal enterprise; (3) having the company purchase life-insurance only for the majority’s benefit; and (4) taking improper, low-interest loans from the company.
New Jersey Appellate Division Affirms Trial Court’s Finding of Shareholder Oppression and Award of Compensatory Damages and Attorney’s Fees
Recently, the New Jersey Appellate Division affirmed a Monmouth County General Equity Judge’s finding in favor of an oppressed minority shareholder. Kaible v. Gropack, 2013 N.J. Super. Unpub. LEXIS 1453 (App. Div. 2013). The Appellate Division also affirmed the Trial Court’s verdict in favor of the oppressed minority shareholder which awarded him damages and attorneys’ fees pursuant to the New Jersey Minority Oppression statute. See N.J.S.A. 14A:12-7(c); & N.J.S.A.14A:12-7(8)(d).