Nightingale & Associates, LLC v. Hopkins, Slip Copy, 2008 WL 4848765, (D.N.J., November 05, 2008).
In an unpublished opinion, the United States District Court for New Jersey has granted a motion to dismiss an oppression claim for failure to state a claim under Delaware law. The case involved a dispute among the members of a Delaware limited liability company arising from efforts by the company to force a member into retirement. The company sued the minority owner, who then counterclaimed for oppression. The minority owner resided in New Jersey and the events giving rise to the cause of action apparently occurred in New Jersey. And the lawsuit was filed in New Jersey federal court. The minority owner argued that New Jersey law should control, and apparently asserted a statutory oppression claim under New Jersey corporate law. The federal court held that Delaware law governed because the limited liability company was formed in Delaware and because the operating agreement provided for Delaware law. The court then dismissed the oppression claim, stating that Delaware did not have a statutory oppression cause of action and citing the Nixon v. Blackwell, 626 A.2d 1366, 1380 (Del. 1993), for the proposition that "the Delaware Supreme Court has refrained from applying remedies for alleged oppression, finding that a person buying into a minority position can bargain for certain protections." This is a gross misstatement of the holding and reasoning in Nixon v. Blackwell. See Nixon v. Blackwell, 626 A.2d at 1380-81 (holding that claims of minority shareholder oppression in a closely-held corporation may be pursued through the "entire fairness test, correctly applied and articulated"). The court's opinion does not give any analysis of the case or consider any of the numerous authorities holding that Delaware does and would apply equitable remedies for oppressive conduct under a breach of fiduciary duties cause of acgtion. See Clemmer v. Cullinane, 815 N.E.2d 651, 652-53 (Mass. App. 2004) (holding that the Nixon decision did not foreclose a shareholder oppression cause of action, but merely required that the claim be pursued through Delaware's "entire fairness" test, and on that basis held that the plaintiff had stated a claim for shareholder oppression under Delaware law); see, e.g., Hollis v. Hill, 232 F.3d 460, 465, 469 n. 28, 470-71 (5th Cir. 2000); Mroz v. Hoaloho Na Eha, Inc., 410 F.Supp.2d 919, 934-35 (D. Hi. 2005); Minor v. Albright, 2001 WL 1516729 (N.D. Ill. 2001) [review case analysis]; Reserve Solutions, Inc. v. Vernaglia, 438 F.Supp.2d 280, 290 (S.D.N.Y. 2006) [review case analysis]; Sokol v. Education Sys. Corp., 809 N.Y.S.2d 484 (N.Y. Sup. 2005) [review cases analysis]; see also Gagliardi v. TriFoods Int'l, Inc., 683 A.2d 1049, 1051 (Del. Ch. 1996) ("I need not address the general question whether Delaware fiduciary duty law recognizes a cause of action for oppression of minority shareholders; I assume for purposes of this motion, without deciding, that under some circumstances it may."); Litle v. Waters, 1992 WL 25758 (Del. Ch. Feb. 11, 1992) (applying "reasonable expectations test" and holding that plaintiff had stated a claim for minority shareholder oppression) [review case analysis]. Perhaps the court's holding is correct if the minority owner did not plead a claim for breach of fiduciary duty under Delaware law, but the reason given is clearly wrong.
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