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Pappas v. Coach House Diner and Restaurant, Inc.

2005 WL 1421375 (N.J. Super. App. Div. 2005) (Unpublished)

CORPORATIONS; OPPRESSED SHAREHOLDERS — Absent evidence of oppressive conduct by the majority shareholders, a party may not succeed on a claim of minority shareholder oppression based solely on a disagreement as to business affairs of the corporation.

Three brothers owned two corporations in which each had a one-third interest. They were also equal partners in two partnerships. Two diners were operated through the corporations and each shared the responsibilities of the daily operations of the diners. One brother operated one of the diners where his wife and son were employed. The other two brothers ran the second diner. The two brothers wanted to renovate “their” diner and asked the third brother to cooperate by personally guaranteeing a mortgage for the improvements. He refused to cooperate and a dispute arose regarding the profitability of the diners. The third brother sued his two brothers asserting that they had united against him and were engaging in behavior that was oppressive to him as a minority shareholder in violation of N.J.S.A. 14A:12-7(1)(c). His two brothers filed a counterclaim, charging him with mismanagement, concealment, and fraud and requesting an injunction to prevent him from operating the first diner. All requested an accounting, partition of all real estate holdings, damages, restraints against alienation of corporate assets, and an order appointing one of them as the owner of both corporations. In the alternative, the third brother sought appointment of a receiver and dissolution of the corporations and partnerships. After trial, the lower court entered a judgment in which no party prevailed. It found that the two brothers had not oppressed the third brother and that the third brother had not mismanaged the diner that he operated. It abstained from ordering a buy-out remedy or monetary damages. It ruled that each of the brothers should have unfettered access to each of the businesses and that no party should be required to pledge personal collateral or assume any personal responsibility for a corporate obligation. It further ruled the two brothers could proceed with the renovations to the diner that they operated. Four months after this judgment was entered, the third brother filed an order to show cause against his two brothers asserting that they were attempting to dilute his minority interest in the corporations by issuing new shares of stock. He also asserted that his two brothers were provoking altercations with the employees at the diner that he operated. He contended that their behavior violated the final judgment. He sought preliminary restraints enjoining his two brothers from issuing new stock for the corporations and from interfering with his operations at “his” diner. In response, his two brothers contended that their actions were consistent with the final judgment. The lower court denied the third brother’s application on the basis that he had failed to show a likelihood of succeeding on the merits of his claim. The third brother appealed.

The Appellate Division affirmed the lower court’s ruling. It held that the activity the third brother sought to enjoin was not prohibited by the final judgment. It found that the judgment did not bar his two brothers from issuing new stock. It further found that the substance of the man’s objection to the issuance of stock was essentially a new minority shareholder oppression claim. The Court held that the third brother had to file a new minority shareholder oppression suit because his prior claim had been rejected by the lower court.

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