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).
The case involved a closely held New Jersey corporation with three shareholders. The plaintiff owned 33.3% of the stock. The two defendants owned the remainder of the stock. During the course of the trial, the Plaintiff was able to demonstrate that the Defendants subjected him to the following forms of actionable minority oppression:
- Forcing the Plaintiff out of the company by excluding him from participating in any management or decision making;
- Requiring the Plaintiff to assume a different role within the Company at the behest of the Defendants;
- Informing the Plaintiff that he would no longer render services as an officer in the company;
- Withholding the Plaintiff’s final paycheck;
- Rejecting the Plaintiff’s requests to review the Company’s books and records; and
- Informing the Plaintiff that the Company was experiencing “financial difficulties” and indicating that they wanted him to step down when in fact, the company was not experiencing financial problems.
The Kaible Court analyzed the New Jersey Minority Oppression Statute and the case law interpreting the same. In doing so, the Court recognized that shareholder oppression cases are extremely fact sensitive. A Plaintiff is required to show fraud, illegality or that their “reasonable expectations as a shareholder” were interfered with. In this case, most of the alleged oppression related to the Defendants taking steps to minimize the Plaintiff’s role in the company. To determine whether a particular course of conduct has oppressed a minority shareholder in violation of the Oppressed Minority Shareholder Statute Courts should examine the understanding of the shareholders concerning their roles in corporate affairs. See, Muellenberg v. Bikon Corp., 143 N.J. 168, 179 (1996). In doing that analysis, the Kaible Court affirmed the Trial Court’s finding that the Defendants violated the New Jersey Minority Oppression Statute.
The Kaible Court also affirmed the Trial Court’s decision to award the Plaintiff attorneys’ fees pursuant to N.J.S.A. 14A:12-7(8)(d). The Appellate Division found that the Trial Judge was “not required to find that the defendants acted in bad faith in order to award counsel fees pursuant to subsection (8)(d), but rather that the Judge [found] that shareholder oppression took place.” See also, Musto v. Vidas, 333 N.J. Super. 52, 71 (App. Div.), certif. denied, 165 N.J. 607 (2000). The discretion of a trial court to award counsel fees when oppression is found can be an effective tool in evening the playing field between the majority oppressor and the minority oppressed. Of course, discretion means that the trial court does not always have to award counsel fees if it finds oppression.