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In re Kemp & Beatley, Inc. - 64 N.Y.2d 63, 484 N.Y.S.2d 799, 473 N.E.2d 1173 (1984)

Rule:

Oppressive actions under N.Y. Bus. Corp. Law § 1104-a refer to conduct that substantially defeats the "reasonable expectations" held by minority shareholders in committing their capital to the particular enterprise.

Facts:

Kemp & Beatley is incorporated under the laws of New York; its stock consists of 1,500 outstanding shares held by eight shareholders. Petitioner Dissin had been employed by the company for 42 years when, in June 1979, he resigned. He owned 200 shares of stock in the company. Petitioner Gardstein had also been a long-time employee of the company.  Hired in 1944, his employment was terminated by the company in December 1980. He owned 105 shares of stock. Upon leaving the employ of the company, petitioners no longer received any distribution of the company's earnings. Petitioners considered themselves to be "frozen out" of the company, whereas it had been their experience when with the company to receive a distribution of the company's earnings according to their stockholdings, either in the form of  dividends or extra compensation; with that distribution no longer forthcoming, Gardstein and Dissin, together holding 20.33% of the company's outstanding stock, filed suit in June 1981, seeking dissolution of Kemp & Beatley pursuant to section 1104-a of the Business Corporation Law. Their petition alleged "fraudulent and oppressive" conduct by the company's board of directors such as to render petitioners' stock "a virtually worthless asset." The trial court agreed, and awarded petitioners their requested relief.

Issue:

Did the corporate management by its policies effectively rendered petitioners' shares worthless, and the only way petitioners can expect any return is by dissolution?

Answer:

Yes

Conclusion:

The court affirmed, holding there was sufficient evidence supporting the lower court's conclusion that majority shareholders had altered a long-standing policy to distribute corporate earnings on the basis of stock ownership, as against petitioners only. Furthermore, the court reasonably determined this change in policy amounted to an attempt to exclude petitioners from gaining any return on their investment and no error occurred in determining that this conduct constituted "oppressive action." Moreover, no abuse of discretion occurred in concluding that dissolution was the only means by which petitioners could gain a fair return on their investment. The court merely modified judgment by permitting additional 30-day extension for exercising option to purchase petitioners' shares.

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