Sokol v. Ventures Education Systems Corp., 10 Misc.3d 1055(A), 809 N.Y.S.2d 484, 2005 WL 3249447 (N.Y.Sup. June 27, 2005).
The plaintiff minority shareholder sued the defendant majority shareholder in a closely-held a Delaware corporation for oppression, claiming that she terminated his employment, excluded him from management, refused to provide him with financial information or keep him informed of corporate affairs, improperly diluted his share interest by issuing new shares, and was guilty of mismanagement and misappropriation of corporate assets. Plaintiff claimed violation of his reasonable expectations of employment and continued participation in management and sought judicial dissolution or a forced buyout of his shares at fair value. The defendant moved for summary judgment on plaintiff's claims.
As an initial matter, the court held that a Delaware corporation could only be dissolved by an order of a Delaware court and dismissed claims for appointment of a liquidating receiver and for dissolution; however, the court held that it did have jurisdiction to award other relief sought by the plaintiff under Delaware law. In reviewing any plaintiff's claim for oppression, the Court acknowledged Nixon v. Blackwell and held that because the Corporation had not elected close corporation status under Delaware statutory law, the dispute would be governed by the same law that applies to corporations generally. Relying on Litle v. Waters, the court held that Delaware law recognizes two definitions for oppression: "violation of the reasonable expectations of a minority," and "burdensome, harsh and wrongful conduct, a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members, or a visible departure from the standards of fair dealing."
The court held that plaintiff's claims were not sufficient to raise a triable issue regarding the existence of oppression under Delaware law. Citing Gagliardi
v. TriFoods International, Inc., 683 A.2d 1049, 1051 (Del. Ch.. 1996), the Court held that the Board of Directors of the Corporation has no duty to furnish information to a shareholder other than to comply with Section 220 of the Delaware corporate law, which provides the sole remedy. Further, the Board of Directors has no legal or other duties to enter into arrangements with the plaintiff or to avoid transactions that will have the effect of diluting plaintiff's proportional shareholding, so long as it acts in good faith for the benefit of the Corporation. The court held that the plaintiff had produced no evidence of written or oral agreement or Delaware law providing him the rights and privileges that he claimed that defendant denied him. The court also noted that the application of the "entire fairness" test to the alleged misconduct did not require a different conclusion. Plaintiff had participated in some of the transactions that he challenged, and the Court held that there was no evidence that the private sale of stock to individual shareholders was in any way unfair to plaintiff. The court also held that plaintiff's expectations of continued employment were neither reasonable nor well-founded. The court noted that plaintiff did not have and employment contract that that Delaware law provides that a corporation owes no special fiduciary duty to a shareholder who is an at-will employee with respect to continued employment, citing Ueltzhoff v. Fox Fire Dev. Co, 17 Del. J. Corp. L 1297 (Del. Ch. 1991), aff'd su nom Fox Fire Dev. Co. v. Hans, 618 A.2d 90 (Del. 1992). The court held that various statements allegedly made to plaintiff, that defendant would keep him in management so long as she had control of the corporation and that the corporation would make distributions when cash was available, were too vague and indefinite to constitute enforceable contracts.
The court also grant summary judgment on plaintiff's close of corporate waste, mismanagement, and self-dealing because these claims belong to the Corporation on plaintiff failed to allege than any derivative action.
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