A Corporate Dissolution Minefield

Publication Source: New York Law Journal

Attorneys who handle business dissolutions and shareholder and partnership disputes know that these cases can often be even more gut-wrenching than marital dissolutions. They often involve friendships or family relations that have gone seriously awry. For the legal strategist, however, these cases frequently present a cornucopia of intricate tactical decisions in a corporate and procedural 'chess game.'

A case pending in Nassau County's Commercial Division recently presented Supreme Court Justice Leonard B. Austin with an array of issues typically seen in cases of this nature, but in a variety of interesting contexts: (i) whether the grounds for minority oppression have been met; (ii) whether the corporation should be dissolved as a result; (iii) whether the corporation should be liquidated or sold as a going concern, with goodwill valued; (iv) whether an implied restrictive covenant should be imposed; and (v) whether the majority shareholders should be forced to buy out the minority, petitioning shareholder. The court's resolution of these issues is instructive.

The facts in Autz v. Fagan, Index No. 3348-06 (NYLJ, Sept. 28, 2007), are as typical as they get. Two physicians formed a professional corporation to provide medical services. The practice started out with no patients and in 12 years had grown to approximately 12,000 patients. After about five years in practice together, the two original shareholder-physicians brought in another doctor, who ultimately became an equal shareholder.

According to the allegations, the relationship between the two original shareholders deteriorated after one of them declined the other's offer to combine his separate medical practices into their joint practice.

Read the full article in the attached PDF.

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Kevin Schlosser is a Shareholder at Meyer, Suozzi, English & Klein, P.C., where he is Chair of the Litigation and Alternative Dispute Resolution Department which has a full roster of available private judges from virtually all disciplines of law. Mr. Schlosser also authors the popular blog, “New York Fraud Claims,” which analyzes the latest developments concerning civil fraud claims under New York law.

Reprinted with permission by the New York Law Journal.