McBride Law Blog

New York Law Update: Shareholder Oppression and Forced Buyout (Post II)

McBride Law Blog

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In Piazza v. Gioia,[1] Piazza and Gioia Sr. founded Kings County Waterproofing Corp. (KCWC) in 1979 and held 40% and 60% of the shares, respectively.  Gioia Sr.’s son also worked for the company eventually became a 1/3 owner, along with his father and Piazza.  Their shareholders’ agreement contained stock transfer restrictions and buyout provisions, which, among other things, gave the non-selling shareholder an option to purchase the selling shareholder’s shares at “the last stipulated price preceding the date of the notice to sell the shares.”  In 1996, Gioia Sr. retired as a director and officer and received 80% of the salary being paid to Gioia Jr. and Piazza for his post-retirement income.  Piazza also retired at a later time, but while retired, he continued to provide the necessary financial backing to help the company secure large contracts.  Piazza’s post-retirement salary was $5,400 per month as of June 2014, which amounted to approximately 8% of Gioia Jr.’s average monthly salary—despite the fact that Piazza’s continued financial backing allowed the company to thrive.

In 2002, Gioia Sr. sold all of his stock to Gioia Jr. under the shareholders’ agreement, making Gioia Jr. a majority shareholder of the company.  According to Piazza, Gioia Jr. became combative once he became the majority shareholder, making important business decisions over Piazza’s objection, appointing his young adult children as directors of the company, and incorporating a competing business using KCWC’s equipment and employees, among other things.  Piazza also asserted that despite the company’s profit, not a single dollar of it had been distributed to the shareholders as a dividend payment and that Gioia Jr. used corporate funds for his personal use and took $500,000 in salary and benefits when KCWC was operating at a loss.  Piazza also claimed that Gioia Jr. did not allow Piazza’s accountant access to the company’s books and records and declined the accountant’s request to complete a business valuation questionnaire and turn over relevant records.

In April 2015, Piazza filed a lawsuit seeking judicial dissolution of the company based on oppression, as well as preliminary injunction prohibiting any transfers of KCWC’s assets.  Piazza alleged that Gioia Jr.’s actions amounted to illegal, fraudulent, and oppressive actions against the minority shareholder and that Gioia Jr. engaged in the looting, wasting, or diversions of corporate assets for personal purposes.  Piazza also asserted various other claims, including breach of fiduciary duty, usurpation of corporate opportunities/corporate waste, and unjust enrichment based on Gioia Jr.’s alleged receipt of an exorbitant salary and benefits, among other things.

This post was part of multi-part series on shareholder oppression and forced buyout under New York law.  You can find the other posts by searching our blogs at www.mcbrideattorneys.com.  In our next post, we will discuss how the court ruled in Piazza v. Gioia.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

[1] See generally Matter of Piazza v. Gioia, 2016 NY Slip. Op. 31430(U) (Sup. Ct. Kings Cty. July 21, 2016).  Unless otherwise specified, all references to the case are to this citation.

Posted In: Business Management, Disagreement, Minority Shareholders, Multiple Owners, New York Law Update, Uncategorized

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