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). The New York statute provides, in relevant part, as follows:
(a) The holders of shares representing twenty percent or more of the votes of all outstanding shares of a corporation, other than a corporation registered as an investment company under an act of congress entitled “Investment Company Act of 1940”, no shares of which are listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national or an affiliated securities association, entitled to vote in an election of directors may present a petition of dissolution on one or more of the following grounds:
- The directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders;
- The property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation.
Business Corporation Law § 1104-a (a)(1) and (a)(2).
Pursuant to New York law “oppression should [is] deemed to arise only when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner’s decision to join the venture.” Matter of Kemp & Beatley, Inc., 64 NY2d 63, 73, 473 N.E.2d 1173, 484 N.Y.S.2d 799 [1984].) In other words, like New Jersey, New York applies the “reasonable expectations of the shareholder” test when determining whether or not the majority oppressed the minority shareholder. That test first requires the party seeking to invoke the protections set forth in Business Corporation Law § 1104-a (a)(1) and (a)(2) demonstrate that their expectations are reasonable.
Often parties will use “course of dealing evidence” to determine what are the reasonable expectations of the shareholder. For example, if the shareholder has never been employed by the subject company it would be difficult to use the majority’s refusal to hire the minority as proof of oppression. See Matter of Farega Realty Corp., 132 AD2d 797, 798, 517 N.Y.S.2d 610 (3d Dept. 1987) (petitioner could not state claim for oppression where petitioner was “a passive investor” and he neither sought “responsibilities in the day-to-day management nor did he expect the corporation to provide him with an occupation”). On the other hand, a minority could establish oppression if they demonstrated their employment was terminated and their active participation in the company was interfered with by the majority. See, Matter of Rambusch, 143 AD2d 605, 606, 533 N.Y.S.2d 423 (1st Dept 1988) (petitioner stated claim for oppression where “he was employed for 36 years, and in which he served in executive positions and owned over 30% of the stock”).