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Antonucci v. Morris County Cardiology Consultants, P.A.

A-5773-07T1 (N.J. Super. App. Div. 2010) (Unpublished)

CORPORATIONS; SHAREHOLDERS — Where a shareholder with non-voting shares is aware of the difference between a corporation’s voting and non-voting shares, the corporation’s actions to amend its certificate so as to properly provide for non-voting shares and for the number of issuable shares causes no harm to the shareholder of the non-voting shares.

A cardiologist joined a professional association originally founded by a physician. The corporation’s certificate of incorporation specified 2,500 issuable shares. This physician was the sole stockholder of the corporation. The cardiologist signed a five year employment agreement that specified his anticipated purchase by the contract’s end of 250 shares. The type of shares were not described, nor would it represent the percentage of interest in the corporation’s total issued shares. Contemporaneous minutes of a meeting of the association’s board of directors indicated that the cardiologist would receive non-voting stock. The cardiologist knew that the value of his shares was limited to a portion of the accounts receivable, and a subsequent meeting’s minutes indicated that the voting shares, held by the physician, represented ownership in the remaining assets.

The success of the practice led the original physician to permit the cardiologist to purchase ten more shares each year, such that he purchased an additional fifty non-voting shares. The cardiologist executed a successor employment contract five years later. It indicated that his shares were non-voting shares and his proportional interest reflected accounts receivable. The contract also explained that the original physician owned all of the voting shares. A successor employment contract two years later eliminated the share differences, and indicated that the cardiologist’s equity shareholder status entitled him to severance payments, and a later employment contract five years after that recited that the value of the equity interest was entirely subsumed in specified severance payments. When the cardiologist later filed a claim for disability benefits, his application indicated that he did not have an ownership interest in the association. In connection with the cardiologist’s divorce, he certified that he was a holder of Class B shares that conferred no equity interest in the association, only to severance pay. Around that time, the original physician was advised by his attorneys that issuance of shares to the cardiologist was not valid because the shares had not been authorized. By amending the association’s certificate of incorporation, the original physician corrected the problem without recalling the shares. After fourteen years with the association, the cardiologist announced his retirement. He negotiated to get his client list and medical records, and the association cooperated. Once he established his own practice, he sued the association and went to trial on the following claims – claiming to be an oppressed shareholder, breach of the duties of loyalty, good faith, fair dealing, and honesty; and fraud.

The lower court dismissed the suit, finding that the cardiologist was a successful and productive doctor whose only expectation was to share profits with the original physician, and who did not intend to be an active manager of, or an involved shareholder in, the association. The court further found there was no mismanagement or unfair profit distribution during the cardiologist’s years in the association.

The Appellate Division affirmed the court’s original ruling that the cardiologist had failed to establish any of his claims. It said that there must be a nexus between any misconduct by a director or those in control of a corporation and a minority shareholder or his interest in the corporation. Here, the Court found that the cardiologist continued to work and to accept compensation in accordance with successive contract terms, including bonuses and profit sharing, each of which were based upon ownership of shares. The Court found no unfairness or oppression, and found that the cardiologist was aware of the differences between the kinds of shares in the association, and was not prejudiced by them because his reasonable expectation was only to enjoy profit sharing. These findings showed no nexus between the failure of the founding physician to amend the certificate of incorporation and any harm to the cardiologist.

Accordingly, the Court affirmed the lower court’s decision that the cardiologist was not entitled to an order compelling purchase of his shares, or establishing fraud or breach of a duty owed to him as a shareholder.


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