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Casella v. Home Depot USA, LLC

2010 WL 3001919 (U.S. Dist. Ct. D. N.J. 2010) (Unpublished)

LIMITED LIABILITY COMPANIES; OPPRESSION — Even though many prior cases rely on the “close link” between the Limited Liability Company Act and the Business Corporation Act, when the Limited Liability Company Act was adopted the Legislature did not incorporate the minority oppression provisions of the Business Corporation Act into the Limited Liability Company Act.

A plumbing company was formed as a limited liability company and, to comply with New Jersey law, engaged a master licensed plumber to serve as its bona fide representative. The identity of a licensed master plumber must “be included on every signing and advertisement of the company.” To comply with this requirement, the plumbing company hired a licensed master plumber to serve as its vice president and to act as its bona fide representative. The plumber’s employment agreement expressly provided that if the plumber was no longer employed, the plumber would “automatically and immediately ‘relinquish all of his interests’” in the company. Pursuant to an operating agreement, the plumber was made a member and 10% owner of the company, each as required by New Jersey’s licensing requirements.

By reason of a medical leave, the plumber was absent from employment for an entire year but remained an employee until just after the end of that year. Three months later, the company was dissolved, but the plumber never was consulted about the dissolution or his ownership rights. During that three month period, the company continued to list the plumber’s license number on its website and also used the plumber’s license number in its newspaper advertising.

The plumber alleged “that he was never given proper compensation of the net profits of [the company] in accordance with his ten percent membership.” When the parties could not resolve the issue, the plumber sued the company and the other owner, “seeking an accounting and alleging breach of fiduciary duty.” In the present action, the plumber sought to “amend the Complaint in order to include a cause of action for shareholder oppression and violation of N.J.S.A. 14A:12-7(1)(c).” In his proffered complaint, he alleged that the other member “used its majority controlling interest to act fraudulently or illegally, and mismanage the affairs of the corporation [sic], abuse its authority, and/or act oppressively or unfairly toward [him], depriving [him] of his reasonable expectations as a member” of the company. In response, the majority owner of the company argued that the claim of shareholder oppression “should be denied as futile because the statute applie[d] only to corporations with 25 or less members.” This presented a specific issue to the Court of whether the plumber, “a former member of a limited liability company [was] able to bring the claim of shareholder oppression under [the cited statute].” The Court recognized that there “is a close link between the New Jersey Business Corporation Act ..., which the minority oppression statute is a part of, and the New Jersey Limited Liability Company Act.” Nevertheless, the Court recognized that when New Jersey’s Limited Liability Company Act was adopted, the Legislature “did not incorporate the minority oppression statute,” a part of the Business Corporation Act, into the Limited Liability Company Act. Thus, according to the Court, “minority members of limited liability companies do not have an equivalent minority shareholder oppression cause of action” under the Limited Liability Company Act.

The Court, however, did recognize that many prior cases had relied on the “close link” between the Limited Liability Company Act and the Business Corporation Act. Despite the many examples cited by the Court, it, after analyzing a recent Third Circuit Court Appeal analysis of New Jersey’s minority oppression statute, concluded that the “shareholder oppression statute was created to provide special protection to closely held corporations in the State of New Jersey,” and the plumber, in this case, could not rely on it when asserting claims with respect to his membership rights in a limited liability company.”


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