McCall v. Van Cleef, Sr.

A-2312-97T2 (N.J. Super. App. Div. 1999) (Unpublished)
  • Opinion Date: February 22, 1999

CORPORATIONS; SHAREHOLDERS; FIDUCIARY DUTY—An oppressed minority shareholder is not limited to receiving statutory damages, but can get the equivalent of contract damages where equity so dictates.

A landowner and a developer owned a corporation formed for the purpose of constructing and selling homes on the landowner’s property. The developer owned 60% of the corporation and the landowner owned 40%. One paragraph of the agreement between the parties read: “[T]he within Agreement, in the event sufficient homes are not sold in any one year to make the within proposal economically viable, may be canceled at the option of the said [landowner].” Invoking that provision, the landowner, as a majority owner of the corporation, caused the company to be dissolved. Thereafter, the landowner, in its own name, constructed homes on its land until such time as it sold the remaining, undeveloped land. The developer sued, claiming breach of contract, breach of fiduciary duty, and intentional interference with economic relationships. The lower court found the landowner liable for breach of contract and breach of its fiduciary duties because it found that the determination contingency had not been satisfied. This was based on the lower court’s interpretation of the phrase “economically viable,” and a finding that the venture, in fact, had been “economically viable.” As to the measure of damages, the lower court combined the profit that would have been derived from the sale of houses with the fees that the landowner would have received for its land. The Appellate Division upheld the lower court’s basic findings, but disagreed with the assessment of damages. In its view, in a case where the root of the liability is the breach of a majority shareholder’s fiduciary duty to a minority stockholder in a closely held corporation, the damages should be calculated so as to fulfill the minority’s reasonable expectations. Although ordinarily the remedy in such matters is analyzed within the framework of the Business Corporation Act, where, as here, the statutory remedies are inappropriate to fulfill the minority shareholders’ expectations, courts are permitted to be flexible in their approach to damages. According to the Court, the Act was intended to “expand the protection available to minority shareholders,” not to narrow their remedies. Consequently, money damages for lost profits was a perfectly acceptable remedy in this case and the lower court was empowered to use contract principles as an appropriate guideline for this purpose. Even though this was a breach of fiduciary duty case, the minority shareholders were entitled to be placed “in as good a monetary position as they would have enjoyed if performance of the contract had been rendered as promised.” Consequently, the matter was remanded to the lower court for further factual findings as to what development profit would have been earned had the professional developer been involved in the post-dissolution home sales.