The Corbos and the Bonavitas
were a big family that ran a chain of jewelry stores.
At the time of the case,
Alan owned 50% of the stock in the corporation, and Gerald owned the
other 50%.
They were both getting paid
the same salary, even though Alan and his family did most of the work
and Gerald was mostly retired and had no children in the business.
Gerald retired. He asked the
directors to pay a dividend, but Alan blocked it. Gerald sued.
Gerald argued that since he
was retired he wasn't making any money on his shares because of
employment. On the other hand, Alan and his family were making a lot of
money from being employed.
Gerald argued that the
corporation was being operated for the substantial benefit of Alan's
family, but gave Gerald no benefit. That is oppressive conduct.
Gerald argued that the
corporation was deadlocked because
both Alan and Gerald owned 50% of the shares and had diametrically
opposed goals for the corporation.
Alan argued that there were
good business reasons for not paying dividends and keeping a lot of
assets available for the business.
The Trial Court found for
Gerald.
The Trial Court found that
it didn't matter whether paying dividends was a good business decision or
not because the two parties were not in the same position.
The Court found that even if
Alan's refusal to pay dividends was not wrongful or illegal, it did have
the practical effect of destroying any reasonable expectation that Gerald
would have in his investment. With no dividend and no employment (and no
way to sell the shares), his investment was essentially worthless.
The Court found that under
New Jersey law, there were four potential remedies for oppression:
Appoint a custodian,
appoint a provisional director, order a sale of the corporations' stock,
or dissolve the corporation.
The Court ordered the
corporation to buyout Gerald's stock for a price set by the Court.
Technically, under New
Jersey law, a court could only order someone to sell, they couldn't
order someone to buy, but the Court decided that forcing the corporation
to buy out Gerald was the only rational, feasible alternative.
