Pisacane v. Miele

A-3803-97T3 (N.J. Super. App. Div. 1999) (Unpublished)
  • Opinion Date: June 23, 1999

CORPORATIONS; SHAREHOLDERS—Where shareholders agreed to provide equal cash contributions, but one failed to meet that obligation, a court orders that the delinquent shareholder only receive stock proportionate to its cash contribution.

Two individuals entered into a shareholders’ agreement to utilize a dormant corporation to obtain a municipal contract for the construction and operation of a trash transfer station. The agreement provided that the minority shareholder was to receive forty-nine percent of the stock. Nonetheless, the two shareholders were to divide any profits equally. The agreement was silent concerning the amount that each shareholder was to contribute toward construction of the transfer station. The minority shareholder refused to contribute more than $35,000 and the other shareholder was forced to contribute more than $900,000. During the pendency of the resulting dispute, the shareholders’ agreement was consensually modified to reduce the minority shareholder’s stock ownership to forty percent and nine percent ownership interest was given to the majority owner’s spouse. Thereafter, the corporation determined to raise $400,000 of new capital by issuing new stock. Each stockholder was to be entitled to purchase a percentage of that new stock proportional to his or her existing percentage of stock ownership. The minority shareholder did not respond to the offer. The stock was then issued in accordance with each stockholder’s cash contributions. Under that formula, the minority shareholder who had contributed $35,000 received less than nine percent of the issued stock and the other shareholders received the balance. Thereafter, the minority shareholder brought an action seeking, among other things, a declaration that it was the owner of forty-nine percent of the stock. The lower court found that the minority shareholder had agreed to share construction costs equally and ordered that the minority shareholder receive only 8.33 percent of the corporation’s net profits for certain years. Further, the lower court ordered that the minority shareholder’s $35,000 be returned and that the ownership interest be terminated. In addition, the lower court awarded compensation to the minority shareholder for services that had been performed for the corporation. The Appellate Division, viewing the record as a whole, agreed that the lower court’s decision was correct.