Gimpel v. Bolstein
477 N.Y.S.2d 1014, 125 Misc. 2d 45, 1984 N.Y. Misc. LEXIS 3369 (1984)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
While minority shareholders may seek corporate dissolution for 'oppressive actions,' a shareholder's prior misconduct, such as theft from the corporation, significantly impacts what constitutes 'reasonable expectations' of benefits, and courts retain broad discretion to fashion equitable remedies short of dissolution, even when some majority conduct is improper.
Facts:
- Gimpel Farms, Inc. is a family-owned dairy corporation founded in 1931 by Louis Gimpel.
- Control of Gimpel Farms, Inc. passed from Louis Gimpel to his son David Gimpel (Robert Gimpel's father) and son-in-law Moe Bolstein, and subsequently to the third generation including Robert Gimpel, George Gimpel, and Diane Bolstein Kaufman.
- The Gimpel family members involved in the company's management historically received compensation through salaries and perquisites, and Gimpel Farms, Inc. had a long-standing policy of not paying dividends.
- Robert Gimpel owned voting and nonvoting stock in Gimpel Farms, Inc. through gift and bequest from his father, David Gimpel.
- In 1974, Robert Gimpel was discharged from his managerial position at Gimpel Farms, Inc. following allegations that he had embezzled approximately $85,000 from the company.
- After his dismissal in 1975, Robert Gimpel received no financial benefits from his ownership, was excluded from managerial decisions, and received minimal information regarding company affairs.
- In 1980, subsequent to David Gimpel's death, the other shareholders of Gimpel Farms, Inc. offered to purchase Robert Gimpel's shares, but he deemed the offer inadequate.
- Moe Bolstein, Charles Kaufman (Diane Bolstein Kaufman's husband), and George Gimpel are currently employed by Gimpel Farms, Inc. in executive capacities and receive substantial salaries.
Procedural Posture:
- Robert Gimpel initiated a petition seeking dissolution of Gimpel Farms, Inc. pursuant to Business Corporation Law § 1104-a.
- Robert Gimpel also filed a derivative action against Gimpel Farms, Inc. and his fellow shareholders pursuant to Business Corporation Law § 626.
- Gimpel Farms, Inc. and the fellow shareholders (respondents/defendants) filed a motion to consolidate both suits and to dismiss them for failure to state a cause of action.
- Both parties requested the court to treat the motion to dismiss as a motion for summary judgment and submitted extensive affidavits detailing the underlying facts.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a majority's conduct constitute 'oppressive actions' warranting corporate dissolution under Business Corporation Law § 1104-a when the minority shareholder was previously discharged for theft, and the corporation historically maintained a no-dividend policy while distributing profits as salaries?
Opinions:
Majority - Arthur W. Lonschein, J.
No, the majority's conduct does not constitute 'oppressive actions' justifying dissolution, especially considering Robert Gimpel's prior theft, but the court will fashion an equitable remedy to protect his shareholder rights. The court found that two definitions of 'oppression' have gained currency: 1) a violation of the 'reasonable expectations' of the complaining shareholders, and 2) 'burdensome, harsh and wrongful conduct; a lack of probity and fair dealing.' The 'reasonable expectations' test was deemed inappropriate in this case due to the corporation's advanced age (53 years) and the fact that the current shareholders were two generations removed from the founders, thus not having chosen each other as business associates in the same way partners would. Furthermore, Robert Gimpel's own acts of theft shattered any reasonable expectations of fidelity from his side, making his subsequent expectations those of 'a discovered thief: ostracism and prosecution.' Applying the 'burdensome, harsh and wrongful conduct' test, the court concluded that Robert Gimpel's discharge and subsequent exclusion from corporate management were not oppressive, as it was proper to exclude a thief from the 'councils of power.' However, the majority shareholders must still act with 'probity and fair dealing' towards Robert as a 'shareholder-stranger,' who is entitled to dividends, voting at shareholders' meetings, and access to corporate records. The court ruled that the corporation's continued no-dividend policy was not wrongful because it was a firmly established, basic financial structure of the business, and changing it for Robert's sole benefit would be detrimental to the other shareholders and contrary to original intent for class B shares. While failures to hold shareholders' meetings, issue proper stock certificates, or allow access to stock ledgers were improper, they did not individually or collectively constitute oppressive conduct warranting dissolution. Allegations of excessive salaries and waste were found insufficient for dissolution, as a derivative action provides a sufficient remedy and dissolution is not 'reasonably necessary.' Despite denying dissolution, the court recognized its jurisdiction to fashion a remedy short of liquidation. Citing Business Corporation Law § 1104-a, subd (b)(2) and precedent, the court ordered the corporation to immediately grant Robert Gimpel full access to corporate records and issue proper stock certificates. Most importantly, within six months, the majority must elect to either: 1) alter the corporate financial structure to commence substantial dividend payments (adjusting salaries downward if they include amounts in lieu of dividends), or 2) make a reasonable, good-faith offer to buy out Robert Gimpel's shares. Dissolution would be a remedy for contempt if the order is not followed.
Analysis:
This case significantly clarifies the application of 'oppressive conduct' standards in close corporation dissolution proceedings, particularly when the petitioning shareholder has engaged in prior misconduct. It establishes that a petitioner's 'unclean hands' can preclude reliance on the 'reasonable expectations' test, shifting the analysis to a more objective 'burdensome, harsh and wrongful' standard. The ruling also underscores the court's broad equitable powers to craft remedies less drastic than dissolution, offering alternative protections for minority shareholder rights while respecting established corporate policies and deterring frivolous or opportunistic dissolution petitions. This approach provides flexibility in resolving shareholder disputes in close corporations, aiming for fairness without necessarily dismantling the business.
