Bonavita v. Corbo
300 N.J.Super. 179, 692 A.2d 119 (N.J.Super.Ch. 1996)

  • 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.