In Re the Dissolution of Gould Erectors & Rigging, Inc. , 45 N.Y.S.3d 270 ( 2017 )

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: January 12, 2017 522587
________________________________
In the Matter of the
Dissolution of GOULD
ERECTORS & RIGGING, INC.
and FLACH CRANE & RIGGING
CO., INC.
HANK DIGESER, MEMORANDUM AND ORDER
Respondent;
JOHN C. FLACH et al.,
Appellants.
________________________________
Calendar Date: November 17, 2016
Before: Peters, P.J., Garry, Devine, Mulvey and Aarons, JJ.
__________
The Baynes Law Firm, PLLC, Ravena (Brendan F. Baynes of
counsel), for appellants.
The Harding Law Firm, Niskayuna (Charles R. Harding of
counsel), for respondent.
__________
Mulvey, J.
Appeal from an order of the Supreme Court (Platkin, J.),
entered November 16, 2015 in Albany County, which, among other
things, granted petitioner's application, in a proceeding
pursuant to Business Corporation Law article 11, to direct the
judicial dissolution of Gould Erectors & Rigging, Inc. and Flach
Crane & Rigging Co., Inc.
Petitioner, a shareholder of respondent Gould Erectors &
Rigging, Inc. (hereinafter GER) and respondent Flach Crane &
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Rigging Co., Inc. (hereinafter FCR), commenced this special
proceeding in April 2013 seeking judicial dissolution of GER and
FCR. Following a nonjury trial, Supreme Court determined that
petitioner had established grounds for dissolution of both
corporations under Business Corporation Law § 1104-a (a) (1),
finding that respondent John C. Flach engaged in oppressive
actions toward petitioner. Respondents appeal, and we affirm.
"Business Corporation Law § 1104-a provides for relief to
shareholders of a close corporation when the directors or those
in control of the corporation have been guilty of illegal,
fraudulent or oppressive actions toward the complaining
shareholders" (Matter of Upstate Med. Assoc., 292 AD2d 732, 733
[2002] [internal quotation marks and citation omitted]).
"Although the term 'oppressive actions' is not statutorily
defined, the Court of Appeals has held that 'oppression should be
deemed to arise . . . when the majority conduct substantially
defeats expectations that, objectively viewed, were both
reasonable under the circumstances and were central to the
[shareholder's] decision to join the venture'" (id. at 733,
quoting Matter of Kemp & Beatley [Gardstein], 64 NY2d 63, 73
[1984]). "Our review of Supreme Court's determination . . . 'is
not limited to whether [its] findings were supported by credible
evidence; rather, if it appears that a finding different from
that of Supreme Court is not unreasonable, we must weigh the
probative force of the conflicting evidence and the relative
strength of conflicting inferences that may be drawn, and grant
judgment as warranted'" (Matter of Sunburst Assoc., Inc., 106
AD3d 1224, 1225 [2013], quoting Hunt v Hunt, 222 AD2d 759, 761
[1995]). However, appropriate deference is given to the
credibility determinations and factual findings of the trial
court (see St. Lawrence Factory Stores v Ogdensburg Bridge & Port
Auth., 121 AD3d 1226, 1227 [2014], lv denied 25 NY3d 907 [2015];
Matter of Sunburst Assoc. Inc., 106 AD3d at 1225).
Petitioner is the owner of 24 of 98 issued shares of GER
and 25 of 100 shares of FCR.1 Until shortly before commencement
1
Although respondents highlight discrepancies in the
corporate records and testimony regarding the dates of stock
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of this proceeding, petitioner served as vice-president of both
corporations while Flach was, and remains, president of both.
Petitioner, Flach and their respective fathers have all served as
directors of the corporations. As Supreme Court properly found,
petitioner began his employment as a project engineer and vice-
president with GER in 1988 or 1989 and was issued stock two
different times, once before the commencement of his employment
and the other time during his employment. He also received
shares of stock in FCR at or about the time he started his
employment with GER. Over the course of the next 24 years, the
business grew significantly, with petitioner and Flach sharing
responsibilities for the management of both corporations and
receiving equal compensation. The trial testimony clearly
established that FCR was created merely as a liability shield for
GER and that the shareholders, officers and directors treated
both corporations as one integrated economic unit, sharing office
space and employees. Revenues, expenses and tax liabilities – as
between the two corporations – were manipulated for optimum
advantage by mutual agreement of the officers, directors and
shareholders. Since neither GER nor FCR ever declared dividends,
the shareholders' return on their active management was in the
form of salary and annual bonuses.
After a deterioration in the relationship between these
individuals in late 2012, petitioner was terminated as a director
of both GER and FCR and was notified by Flach that his employment
with GER would be terminated upon completion of an important
project. At some point between December 2012 and May 1, 2013,
petitioner was removed from the board of directors and dismissed
as corporate secretary, and, during that period, he was denied
access to his work computer and email, restricted in his
interactions with GER's customers and employees and excluded from
staff meetings. The project was completed in April 2013, and
petitioner was terminated on May 1, 2013. His children, along
with other employees deemed loyal to petitioner, were also
dismissed. Finally, petitioner was not paid the customary annual
profit-sharing bonus, although a bonus was paid to Flach.
issuance, we accord deference to Supreme Court's credibility
determinations (see Hunt v Hunt, 222 AD2d at 761).
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Respondents contend that the actions taken against
petitioner were a justified response to his wrongful behavior,
specifically, back-dating corporate documents, "unjustly
leverag[ing]" his role as owner/landlord of the real property
upon which the corporate facilities were located, transferring
GER assets to his son at a loss to GER, and other transactions
that Supreme Court appropriately described as "belated and
unsubstantiated grievance[s]." We agree with Supreme Court that
petitioner's actions with regard to the leasehold relationship
came at a time when the parties were discussing severance of
their business relationship and can reasonably be viewed as a
response to respondents' oppressive conduct and not evidence of
bad faith on the part of petitioner. With regard to the other
transactions benefitting family members, Supreme Court properly
observed that Flach also engaged in similar transactions where
personal interests were advanced at the expense of GER.
On our review of the record, we confirm that the weight of
the evidence supports the finding that petitioner's reasonable
expectations at the time of his acquisition of stock in both
corporations was long-term employment, a role in corporate
management and compensation in the form of profit-sharing, and
that Flach's actions defeated those expectations (see Matter of
Kemp & Beatley [Gardstein], 64 NY2d at 72-73). Accordingly, we
find that the record amply supports Supreme Court's
determinations and, therefore, reject respondents' contentions
that the court's findings were against the weight of the
evidence. Finally, we discern no basis to disturb Supreme
Court's finding that Flach's oppressive acts defeated
petitioner's reasonable expectations that were central to his
involvement with FCR as well, given the close overlap of the two
corporations and that the shareholders, officers and directors
treated both corporations as one integrated economic unit. There
can be no question that the freezing out of petitioner from GER
had the same effect on his interest in FCR.
Peters, P.J., Garry, Devine and Aarons, JJ., concur.
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ORDERED that the order is affirmed, with costs.
ENTER:
Robert D. Mayberger
Clerk of the Court