Opinion
23545/2011
02-28-2012
In the Matter of the Application of Wai Mei Ho and MAN HO IP, The holders of fifty percent of all outstanding shares of stock of against NEST & GINGSENG INC., Petitioners, for the judicial dissolution of NEST & GINGSENG, INC., Respondent. NEST & GINGSENG INC.,Petitioners, for the judicial dissolution of against NEST & GINGSENG, INC., Respondent.
For Petitioners Wai Mei Ho & Man Ho Ip: Hazel F. Chin Law Offices, P.C., by Hazel F. Chin, Esq. For Respondent Nest & Gingseng Inc.: Law Offices of Xian Feng Zou, by William X. Zou, Esq.
For Petitioners Wai Mei Ho & Man Ho Ip: Hazel F. Chin Law Offices, P.C., by Hazel F. Chin, Esq.
For Respondent Nest & Gingseng Inc.: Law Offices of Xian Feng Zou, by William X. Zou, Esq.
Charles J. Markey, J.
Nest & Gingseng Inc. was formed on April 29, 2011. Petitioners Wai Mei Ho and Man Ho Ip are each 25% shareholders of said corporation. Yuk Yung Yu is a 50% shareholder of Nest & Gingseng Inc. A shareholders' agreement dated June 7, 2011, provides that these three shareholders will vote their shares for the election of the initial officers as follows: President, Yuk Yung Yu ("Yu") ; Secretary Wai Mei Ho; and Treasurer, Man Ho Ip.
In April, 2011, Nest & Gingseng Inc. entered into a license agreement with J Mart Group Inc., whereby Nest & Gingseng was granted a license to prepare and sell its products at Space No. 112 in the shopping mall located at 136-20 to 136-30, Roosevelt Avenue, Flushing, in Queens County, New York. The license agreement permitted Nest & Ginseng to engage solely in the retail sale of ginseng and Clear mobile internet products.
Petitioners Wai Mei Ho and Man Ho Ip commenced the within proceeding on October 14, 2011, and, upon the foregoing papers, seek judicial dissolution of the corporation, pursuant to Business Corporation Law section1104-a, on the ground that Yu, the majority shareholder, has engaged in oppressive conduct. Petitioners also seek the appointment of a temporary receiver or referee.
Petitioners allege that between May 3, 2011, and September 29, 2011, Yu permitted various individuals to loiter within the store premises and permitted persons unknown to petitioners to leave packages at the store which were then picked up by other persons, unknown to the petitioners. The petitioners are concerned about possible criminal activity at the premises and allege that Yu refused to provide any information about these activities.
Petitioners allege that between July 1, 2011 and August 18, 2011, Yu was absent and could not be reached, except for a single occasion when Yu's sister acted as an intermediary for a consultation on the pricing of goods. In mid-August, 2011, petitioners learned that Yu had been verbally promoting and advertising the sale of the corporation, or her stock in the corporation, to others, in violation of the shareholder's agreement.
Petitioners allege that, shortly after the corporation was formed, Yu did not wish to operate the corporation in accordance with the shareholder's agreement, and made many corporate decisions without consulting petitioners or seeking their approval. Yu has also allegedly taken possession of all corporate books and records and has refused their access to the petitioners.
Finally, petitioners allege that from Sept. 26 to 28, 2011, Yu refused to pay the corporation's suppliers of goods and merchandise, and the suppliers consequently removed and recovered the store's inventory. Petitioner Ip has ceased to work in the store since Sept. 29, 2011. As a result of Yu's conduct, petitioners allegedly can no longer operate and manage the corporation with Yu in a harmonious and businesslike manner and, therefore, seek judicial dissolution of the corporation.
Yu and Nest & Gingseng Inc. oppose judicial dissolution of the corporation, and assert that petitioners have failed to demonstrate, prima facie, that Yu is guilty of any illegal, fraudulent or oppressive conduct. Yu asserts that, on Sept. 26, 2011, petitioners suddenly sold off a large portion of the store's inventory at a discount and returned other inventory to suppliers. According to Yu, petitioners kept the proceeds and cleared the corporation's bank account and closed the store. She asserts that the petitioners are seeking to start a competing business in the same shopping mall. Yu asserts that all of the petitioners' allegations are false, petitioners are in breach of their fiduciary obligations and the shareholder's agreement, and petitioners have failed to pay their share of the rent. She alleges that she called a shareholders' meeting on October 17, 2011, but that petitioners refused to attend said meeting.
Petitioners, in their reply affidavits, dispute Yu's allegations and have submitted an affidavit of a supplier who states that inventory was recovered after the corporation failed to make certain payments. Petitioners also assert that the parties attended a meeting on Oct. 7, 2011, allegedly held in lieu of the scheduled Oct. 17, 2011 meeting.
The Court notes that, on Oct. 11, 2011, Yuk Yung Yu and Nest & Gingseng, Inc. commenced an action, under Index Number 232017/11, against Wai Mei Ho and Man Ho Ip for breach of fiduciary duty, breach of duty, unfair competition, conversion, and breach of contract.
Section 1104-a of the Business Corporation Law authorizes the "holders of 20% or more of the outstanding shares of a corporation to present a petition for dissolution based on any of several enumerated grounds, including oppressive acts by the directors or those in control of the corporation" (Matter of Seagroatt Floral Co., Inc., 78 NY2d 439, 444 [1991]; Matter of Kemp & Beatley, Inc., 64 NY2d 63, 72-73 [1984]; In re Parveen, 259 AD2d 389, 391 [1st Dept. 1999]).The Court of Appeals defines "oppressive acts" as conduct that substantially defeats "the 'reasonable expectations' held by minority shareholders in committing their capital to the particular enterprise" (Matter of Kemp & Beatley, Inc., 64 NY2d 72-73, supra; Burack v I. Burack, Inc., 137 AD2d 523, 526 [2nd Dept.], appeal dismissed, 73 NY2d 851 [1988]; In re Maybaum, 6 Misc 3d 1019(A), 2005 WL 287391, 2005 NY Slip Op. 50122 [Sup Ct Nassau County 2005].
"Whether the expectations of the complaining shareholder are reasonable must of course be determined on a case-by-case basis" (Matter of Burack, 137 AD2d at 526, supra; see also, Matter of Kemp & Beatley, Inc., 64 NY2d at 73, supra). However, "[a] shareholder whose own acts result in the complained of oppression cannot seek dissolution of the corporation, utilizing Business Corporation Law § 1104-a, on the basis of those very acts" (In re Maybaum, 6 Misc 3d 1019(A), 2005 WL 287391, 2005 NY Slip Op. 50122, supra; see, Matter of Pace Photographers, Ltd. [Rosen], 71 NY2d 737, 745-746 [1988]; Matter of Kemp & Beatley, Inc., 64 NY2d at 74, supra; Cassata v Brewster-Allen- Wichert, Inc., 248 AD2d 710, 711 [2nd Dept. 1988]. Cf., In re Verdeschi, 63 AD3d 1084, 1085 [2nd Dept. 2009]).
It is well settled that "[t]he appropriateness of an order of dissolution pursuant to Business Corporation Law § 1104-a 'is in every case vested in the sound discretion of the court considering the application'" (Matter of Fancy Windows & Doors Mfg. Corp. [Fei Wu], 244 AD2d 484 [2nd Dept. 1997], quoting Matter of Kemp & Beatley, Inc., 64 NY2d at 73, supra; In re Parveen, 259 AD2d at 391-392, supra), and that "the ultimate remedy of dissolution and the forced sale of corporate assets should only be applied as a last resort" (In re Maybaum, 6 Misc 3d 1019(A), 2005 WL 287391, 2005 NY Slip Op. 50122, supra; In re Ng, 174 AD2d 523, 526 [1st Dept. 1991]).
Yu, the majority shareholder, has submitted an affidavit, in which she denies the allegations set forth in the petition and asserts that the petitioners have engaged in conduct constituting a breach of their fiduciary duties and a breach of the shareholder's agreement. The petition and Yu's sharply conflicting affidavit raise questions of fact regarding the merits of the petition and the appropriate remedy, if any, to be granted (Matter of Steinberg, 249 AD2d 551, 552 [2nd Dept. 1998]; Matter of Fancy Windows & Doors Mfg. Corp. [Fei Wu], 244 AD2d at 485, supra; Cassata v Brewster-Allen-Wichert, Inc., 248 AD2d710, supra).
This Court, must, therefore, hold an evidentiary hearing, pursuant to Business Corporation Law section 1109, in order to resolve these issues (see, In re WTB Properties. Inc., 291 AD2d 566, 567 [2nd Dept. 2002]; Matter of Steinberg [Cross Country Paper Prods. Corp.], 249 AD2d 551 [2nd Dept. 1998]; Matter of Fancy Windows & Doors Mfg. Corp. [Fei Wu], 244 AD2d 484, supra; Matter of Kournianos [H.M.G., Inc.], 175 AD2d 129 [2nd Dept. 1999]; In re Ng, 174 AD2d 523, 526, supra).
The appointment of a temporary receiver is an extreme remedy resulting in the taking and withholding of possession of property from a party without an adjudication on the merits (CPLR 6401; Quick v Quick, 69 AD3d 828 [2nd Dept. 2010]). A temporary receiver should be appointed only where there is clear evidentiary showing of the necessity for the conservation of the property at issue and the need to protect a party's interest in that property (id). Petitioners herein have failed to demonstrate that the "appointment of a receiver is necessary to preserve the assets of the corporation, operate the business, or protect the interests of the parties" (Matter of Steinberg [Cross Country Paper Prods. Corp.], 249 AD2d at 553, supra; see also, Hoffman v Eagle Box Company, Inc., 305 AD2d 544, 545 [2nd Dept. 2003]; Matter of Kristensen v Charleston Sq., 273 AD2d 312 [2nd Dept. 2000]; Schachner v Sikowitz, 94 AD2d 709 [2nd Dept. 1983]).
Accordingly, petitioners' motion for judicial dissolution of Nest & Gingseng Inc., is denied, and an evidentiary hearing shall be held on April 2, 2012, at 10:15 A.M., in the undersigned's courtroom at 25-10 Court Square, Long Island City, Queens County, New York 11101, Part 32, Room 140. Petitioners' request for a temporary receiver is also denied.
The foregoing constitutes the decision, order, and opinion of the Court.
_____________________________
Hon. Charles J. Markey
Justice, Supreme Court, Queens County
Dated: Long Island City, New York
February 28, 2012