Matter of Cristo Bros., Inc., 64 N.Y.2d 976 (1985)
A shareholder owning 20% or more of a corporation’s stock has the right to purchase the petitioner’s shares in a dissolution proceeding brought under both Business Corporation Law §§ 1104 and 1104-a, even if they deny the allegations of oppressive actions.
Summary
This case addresses whether a 50% shareholder in a closely held corporation can exercise the buy-out option under Business Corporation Law § 1118 in a dissolution proceeding initiated under both §§ 1104 and 1104-a, despite denying allegations of oppressive conduct. The New York Court of Appeals held that the shareholder was entitled to buy out the petitioner’s shares. The court reasoned that the statute grants this right to holders of 20% or more of the stock in a proceeding brought pursuant to § 1104-a, and a proceeding under both sections qualifies. The court also noted that concerns about fairness or tax advantages could be addressed when determining the “fair value” of the shares.
Facts
A shareholder (petitioner) initiated a proceeding to dissolve Cristo Brothers, Inc., a closely held corporation, under both Business Corporation Law §§ 1104 and 1104-a. The other shareholder (respondent), owning 50% of the corporation’s stock, sought to buy out the petitioner’s shares under Business Corporation Law § 1118. The respondent denied the petitioner’s allegations of oppressive actions and waste, which are grounds for dissolution under § 1104-a. The petitioner argued that the respondent should not be allowed to buy him out while simultaneously denying the allegations of oppressive actions.
Procedural History
The lower courts ruled in favor of the 50% shareholder, allowing the buy-out. The case then went to the New York Court of Appeals. The New York Court of Appeals affirmed the lower court’s decision, holding that the 50% shareholder was entitled to buy out the petitioner’s shares.
Issue(s)
Whether a shareholder owning 50% of a closely held corporation’s stock can exercise the buy-out option under Business Corporation Law § 1118 in a dissolution proceeding initiated under both §§ 1104 and 1104-a, despite denying allegations of oppressive conduct and waste.
Holding
Yes, because the holder of 50% of a close corporation’s stock is a holder “of twenty percent or more” of such a corporation’s outstanding stock, and a proceeding for dissolution brought under both Business Corporation Law §§ 1104 and 1104-a is a “proceeding brought pursuant to section [1104-a].”
Court’s Reasoning
The Court of Appeals reasoned that Business Corporation Law § 1118 grants a buy-out privilege in any proceeding brought pursuant to section 1104-a. The court found no legislative intent to exclude proceedings brought under both §§ 1104 and 1104-a. The court stated that the holder of 50% of the stock qualifies as a holder “of twenty percent or more” of the corporation’s stock. Regarding the denial of oppressive conduct, the court acknowledged the petitioner’s argument that the respondent should not be permitted to buy him out while denying the allegations of oppressive action and waste. However, the court determined that these factors could be considered when determining the