New Oppression Case: Bascom/Magnotta, Inc. v. Magnotta, 2007 WL 1598753 (Conn. Super. April 17, 2007).

Deadlock and falling out between two shareholders in a two-shareholder corporation. Defendant was accused of misappropriating assets and funds by the other shareholder. Defendant resigned after the accusations, and other shareholder took over operation of the corporation and caused the corporation to sue the defendant. Defendant counterclaimed for oppression and money owed to him by the corporation and requested the appointment of a receiver.

The court held that it is "authorized to appoint a receiver pursuant to General Statutes § 33-898. Though this section does not specifically state the standards to be applied, the section refers to the ability to appoint a receiver when the company is involved in a dissolution proceeding. Section 33-896(a), in turn, provides for a cause of action to dissolve a corporation to be brought by a shareholder if the directors "or those in control of a corporation have acted, are acting or will act in a manner that is illegal, oppressive or fraudulent" or if the "corporate assets are being misapplied or wasted." These standards are consistent with the former sections (e .g., §§ 33-115; 33-120) and with case law. See, e.g., Horton v. Hydra Systems International, Inc., 16 Conn.App. 420 (1988); Krall v. Krall, 141 Conn. 325 (1954); Olechny v. Thadeus Kosciuszko Society, 128 Conn. 534 (1942); Shorrock v. Law, 1996 WL 680068 (Karazin, J., 1996)."

"The power to appoint receivers should be exercised with equitable principles in mind and only sparingly. Horton, supra; Olechny, supra; Masoth v. Central Bus Corp., 104 Conn. 683, 695 (1926). Thus, complete corporate deadlock may require the appointment of a receiver; Krall, supra; as may a need to prevent waste of shareholders' assets. Horton, supra. Where another remedy exists, or where equity does not demand the extreme remedy, the court ought not appoint a receiver. Shorrock, supra; Masoth, supra."

The court declined to appoint a receiver, noting that the corporation had little value and was essentially defunct. The only real purpose of a receiver was to initiate litigation to recover the misappropriated funds, and the controlling shareholder was capable of doing that at much less cost to the corporation and shareholders. "Equity ought not compel the doing of an economically foolish act."