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Wisniewski v. Walsh

A-3477-01T3 (N.J. Super. App. Div. 2004) (Unpublished)

CORPORATIONS; SHAREHOLDERS; OPPRESSION—Under New Jersey’s shareholder oppression statute, a court sets the valuation date for the sale of shares based on notions of equity, but if there is any contest about that date or about the fair value of the shares, summary judgment is inappropriate and a hearing must be held.

Three individuals were equal shareholders in a corporation. One brought a shareholder-oppression action after being ousted. The lower court rejected his claim, instead holding that the ousted shareholder had in fact oppressed one of the others, and that he should sell his shares to the other two at a price to be determined during a later trial. The ousted shareholder appealed this ruling, specifically disagreeing with the lower court over the valuation date set by the court. The lower court had rejected the shareholder’s proposed date because the company had been prospering for some time. It felt the proper valuation date should have been either the date of the second trial or the date the shareholder was ousted from the corporation. Without conducting a second trial, the lower court determined the corporation’s value based on its review of expert reports provided by the parties and by a court-appointed agent. The ousted shareholder argued that the lower court’s method of deciding value without a trial of the contested facts denied him due process, and that the lower court’s selection of a valuation date was an abuse of its discretion.

N.J.S.A. 14A:12-7(8)(a) provides that the purchase price of shares to be sold under the shareholder-oppression statute “shall be their fair value as of the date of the commencement of the action or such earlier or later date deemed equitable by the court.” Prior case law has established that “the date of the ouster” could also be the appropriate valuation date. In this case, the lower court held that the valuation date should be when the ousted shareholder filed the complaint because he had continued to receive salary between the time of his ouster and the date of filing.

On appeal, the Appellate Division held that since the company had continued to grow while the ousted shareholder was actively involved, it would have been inequitable to deny him the benefit of such growth. Therefore, it remanded the matter to determine at what point the shareholder was first no longer involved with the company, because that would be the valuation date.

In terms of the actual valuation of the company, it is improper for a court to decide a case in reliance on an expert opinion without allowing the parties to examine the expert. Further, the Appellate Division held that it could not find an explanation for the lower court’s course of action in deciding fair value without a trial. Therefore, summary judgment by the lower court was improper because there were abundant issues of fact.

The other shareholders claimed that a trial was not warranted because the ousted shareholder had had an opportunity to depose the opposing experts. However, nothing in the record indicated that this was the case, nor did the record show that the lower court considered such depositions in reaching its conclusions. Regardless, a deposition is not a substitute for a trial. The two other shareholders also claimed that because the ousted shareholder failed to ask for a trial either before and after the lower court rendered its opinion, his appeal should have been denied under the plain error rule. The Appellate Division responded that a trial was clearly expected, and a motion for reconsideration based on the denial of trial would have been ineffective under the circumstances. As a result, the Court reversed the lower court’s decision and remanded for trial the issues concerning the valuation date and the fair value of the corporate shares.


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