Case ID: ny-2d_90/html/0682-01.html
Source: Caselaw Access Project
Author: {"author": "Bellacosa, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

[687 NE2d 1342, 665 NYS2d 59]
    In the Matter of John E. Heisler, Jr., et al., Respondents, v Michael L. Gingras et al., Appellants.
    Argued September 16, 1997;
    decided October 28, 1997
    
      POINTS OF COUNSEL
    
      Tobin and Dempf, Albany (Kevin A. Luibrand and Jeffrey D. Gerrish of counsel), for Roemer and Featherstonhaugh, P. C., appellant, and Segel, Goldman & Mazzotta, P. C., Albany (James W. Roemer, Jr., of counsel), for Michael L. Gingras, appellant, and James W. Roemer, Jr., appellant pro se.
    
    I. The Court below erred in holding that respondents acquired shareholder status in Roemer and Featherstonhaugh, P. C., based on a finding that they were held out to parties outside the professional corporation as and were compensated like shareholders. (Mazur v Greenberg, Cantor & Reiss, 110 AD2d 605, 66 NY2d 927; Lewis v Vladeck, Elias, Vladeck, Zimny & Engelhard, 57 NY2d 975; Weiner v Weiner, 88 Misc 2d 920; We’re Assocs. Co. v Cohen, Stracher & Bloom, 65 NY2d 148; Arno Mgt. Corp. v 115 E. 69th Assocs., 173 AD2d 258; Hartford Acc. & Indem. Co. v Oles, 152 Misc 876; Jones v Gould, 209 NY 419; Hackett v Stanley, 115 NY 625; Smith v Bodine, 74 NY 30; Leggett v Hyde, 58 NY 272; Manhattan Brass & Mfg. Co. v Sears, 45 NY 797.) II. The Court below erred in holding appellants estopped to challenge the alleged shareholder status of respondents in Roemer and Featherstonhaugh, P. C., irrespective of the failure of respondents to satisfy the basic, essential requirements to become shareholders of the professional corporation. (Matter of C & M Plastics [Collins — Coons], 194 AD2d 1020; Matter of Stewart Becker, Ltd. v Horowitz, 94 Misc 2d 766; Serdaroglu v Serdaroglu, 209 AD2d 600; Zahr v Wingate Cr. Acquisition Corp., 827 F Supp 1061; Dillon v Peretti, 176 AD2d 497; Bingham v Wells, Rich, Greene, 34 AD2d 924; Holdeen v Rinaldo, 28 AD2d 947; Grodsky v Jason, 225 App Div 888; Rosiny v Schmidt, 185 AD2d 727, 80 NY2d 762.)
    
      E. Guy Roemer, appellant pro se.
    
    I. Petitioners cannot be shareholders in fact because they simply do not hold shares. (Serdaroglu v Serdaroglu, 209 AD2d 600.) II. Petitioners were "shareholders” in name only. (Mazur v Greenburg, Cantor & Reiss, 110 AD2d 605, 66 NY2d 927.) III. There is no "estoppel” against E. Guy Roemer. (Mooney v Nationwide Mut. Ins. Co., 
      172 AD2d 144; Matter of Carr, 99 AD2d 390; Holm v C.M.P. Sheet Metal, 89 AD2d 229; Matter of Kincade v Barristers Tavern Corp., 187 AD2d 593; Block v Magee, 146 AD2d 730.)
    
      Dreyer Boyajian, L. L. P., Albany (Jill A. Dunn and William J. Dreyer of counsel), for respondents.
    I. This Court’s power to review is limited to determining whether the lower courts correctly applied the appropriate legal standard to affirmed findings of fact. (Matter of Unbekant v Bohl Tours Travel Agency, 21 AD2d 317, 14 NY2d 959; Matter of Buckley [Wild Oaks Park], 44 NY2d 560; Matter of Gearing v Kelly, 11 NY2d 201, 1016; Matter of Schmidt [Magnetic Head Corp.], 97 AD2d 244; Shevlin v National Conservation Corp., 199 AD2d 995; Block v Magee, 146 AD2d 730; Chiulli v Cross Westchester Dev. Corp., 130 AD2d 616; Matter of Rochester Urban Renewal Agency [Patchen Post], 45 NY2d 1.) II. Professionals who organize their businesses as professional service corporations, regardless of their reasons for incorporating, relinguish the right to be treated as partners since the two legal entities are mutually exclusive and the decision to incorporate demonstrates a conscious and deliberate selection of one organizational form over another. (Matter of Kincade v Barristers Tavern Corp., 187 AD2d 593; Block v Magee, 146 AD2d 730; We’re Assocs. Co. v Cohen, Stracher & Bloom, 65 NY2d 148; Hyland v New Haven Radiology Assocs., 794 F2d 793; Sprides v Reinhardt, 613 F2d 826; Equal Empl. Opportunity Commn. v Johnson & Higgins, 91 F3d 1529; Frankel v Bally, Inc., 987 F2d 86; Johnson v Cooper, Deans & Cargill, 884 F Supp 43; Fountain v Metcalf, Zima & Co., 925 F2d 1398; Equal Empl. Opportunity Commn. v Dowd & Dowd, 736 F2d 1177.) III. The lower court was correct in finding, as a matter of law, that the inclusion of individuals in a certification which the professional corporation is required by law to file precludes the corporation and its officers and directors from denying shareholder voting rights to those individuals. (National Bank & Trust Co. v Woods, 128 Misc 2d 1051; Matter of Greenberg [Liza Check Cashing], 220 AD2d 205; People ex rel. Queens County Water Co. v Travis, 171 App Div 521, 219 NY 571.) IV. Petitioners met the requirements set forth in the Business Corporation Law and the bylaws of Roemer and Featherstonhaugh, P. C. (National Bank & Trust Co. v Woods, 128 Misc 2d 1051; Boulder Brook Acres v Town & Vil. of Scarsdale, 112 AD2d 336, 66 NY2d 916; Matter of Kincade v Barristers Tavern Corp., 187 AD2d 593; Matter of Seneca Oil v Graham, 153 App Div 594, 208 NY 545; Matter of C & M Plastics [Collins — Coons], 194 AD2d 1020; Matter of Benincasa v 
      
      Garrubbo, 141 AD2d 636; Milau Assocs. v North Ave. Dev. Corp., 42 NY2d 482; Osborn v Kelley, 61 AD2d 367; United States Radiator Corp. v State of New York, 208 NY 144.) V. The lower court’s finding, affirmed by the Court below, that E. Guy Roemer had waived his objections and was estopped from protesting petitioners’ claims as shareholders is supported by the record evidence. (People v Schreiner, 77 NY2d 733; Matter of Corbin v Hillery, 74 NY2d 279, affd sub nom. Grady v Corbin, 495 US 508; Cohen v Hallmark Cards, 45 NY2d 493; Suffolk Hous. Servs. v Town of Brookhaven, 70 NY2d 122; People v Brooks, 65 NY2d 1021; Huntley v State of New York, 62 NY2d 134; Alpert v 28 Williams St. Corp., 91 AD2d 530; Pollitz v Wabash R. R. Co., 207 NY 113; People ex rel. Queens County Water Co. v Travis, 171 App Div 521; Chrysler Corp. v Fedders Corp., 73 AD2d 504, 51 NY2d 953.)
   OPINION OF THE COURT

Bellacosa, J.

Attorneys John E. Heisler, Jr. and Kenneth A. Finder sued under Business Corporation Law § 619 for judicial enforcement of their shareholder status in Roemer and Featherstonhaugh, P. C., an Albany-based law firm. The joint petition sought either to confirm a corporate election held at a shareholder meeting on March 6, 1996, or to order a new election.

At the special shareholders’ meeting, Heisler and Finder were initially precluded from voting. After a brief adjournment of the meeting, James D. Featherstonhaugh, vice-president and secretary of the firm, sua sponte allowed the meeting to continue and permitted Heisler and Finder to vote. The disagreements among the parties escalated into this proceeding and appeal. Respondents-appellants are the professional corporation, its president James W. Roemer, its chief financial officer Michael L. Gingras, and shareholder E. Guy Roemer.

Supreme Court ordered a new meeting of the shareholders and directed that Heisler and Finder be allowed to exercise shareholder voting rights. The Appellate Division affirmed in that regard and modified in a technical respect not before us (235 AD2d 900). This Court granted leave to appeal and we now modify the order by eliminating the relief granted to Finder. While we uphold the relief granted to Heisler as a shareholder with a right to vote, we discern no legal or factual basis to sustain the ruling in Finder’s favor.

At the outset, we reject any estoppel theory or analysis through which to resolve this case. Estoppel, and its related theories (e.g., waiver, acquiescence and course of conduct) should be generally inapplicable as bases to determine controversies of this kind. A myriad of factual variations might otherwise lead to undesirable uncertainties and unevenness in connection with business and professional organizations of these kinds. Other than for exceptional circumstances not present here, equitable considerations might generate indefiniteness and detrimentally diminish the stake and stability of already inherently vulnerable minority shareholders in professional corporations and other types of small business organizations. The potential for irregularity and destabilization might be significant and highly undesirable as a matter of policy and predictable jurisprudence.

In the instant matter, article V, § 1 (b) of the bylaws of this professional corporation provides that "[n]o certificate representing shares shall be issued until the full amount of consideration therefor has been paid, except as otherwise permitted by law.” Business Corporation Law § 504 (a) prescribes that "[consideration for the issue of shares shall consist of money or other property, tangible or intangible, or labor or services actually received by or performed for the corporation or for its benefit.” Therefore, we conclude that for shareholder rights to be recognized under this fact pattern and dispute, consideration of some kind must have been provided and pertinent conditions precedent must have been satisfied.

Heisler’s history and status with the firm meet these standards and are distinctive in this case in relation to appellants and copetitioner-respondent Finder. Heisler indisputably provided consideration by bringing 15 years of experience and professional relationships to the law firm that encouraged him to join it so that he might open a Syracuse office of the firm. The record supports the finding that he would not have laterally moved to the law firm in a capacity less than or different from shareholder.

In fact, Heisler did open and manage the firm’s Syracuse office and exercised managerial responsibilities, including the hiring and firing of employees and billing. Additionally, appellant James Roemer circulated a memorandum to all firm employees announcing that Heisler was joining the firm as a managing shareholder and the firm publicly proclaimed that fact as well. Since Heisler also regularly participated in shareholder meetings and voted as a shareholder, the record evidence, overall, documents and supports the lower courts’ findings of his status as and entitlement to be treated as a shareholder. "We, thus, affirm the order in this appeal as it relates to Heisler.

Record evidence, on the other hand, refutes Finder’s status as a shareholder and distinguishes him from Heisler and the relief afforded to that shareholder partner. Finder was an attorney in the firm’s New York City office and failed — . even expressly declined — to pay any consideration for shares offered to him. Appellant James Roemer attested without contradiction on this record, in relation to Finder, that they had numerous discussions regarding the purchase of stock and that, during a meeting in January 1994, James Roemer informed Finder that he would not become a shareholder or be issued any shares of stock until the specific amount of consideration for shares of stock was determined and paid. Further, open exploration of Finder’s status with the firm is reflected in a June 28, 1994 memorandum from appellant James Roemer to Finder. The memorandum explicitly declares that Finder would "not be issued a share of stock in Roemer and Featherstonhaugh” and would only "be known as a shareholder for compensation and responsibility purposes.” The memorandum also particularly denotes the $50,000 per share price and specifies the shareholder issue as one to be resolved sometime in 1994. Thus, Finder on this record was undeniably aware of his nonshareholder status. Lastly, unlike with Heisler, the record fails to establish that Finder ever voted as a shareholder.

Therefore, this record is not only barren of record evidence or a legal theory by which Finder could be found to have acquired shareholder status, but the uncontradicted facts actually support the opposite conclusion. Since Finder never provided any consideration as prescribed by the professional corporation bylaws and Business Corporation Law § 504, he never attained or became entitled to a shareholder role. We modify the order of the Appellate Division in that regard only as to him.

Finally, we note that the firm’s Business Corporation Law § 1514 filing, which lists petitioners as shareholders, is not in and of itself determinative of the problem presented by this case. While that filing is relevant and important in its own regulatory sphere and purpose, it is not intended to independently bind participants among themselves for the governance of the professional organization. Notably, different considerations may be warranted when the filing affects outside parties or the regulatory responsibilities and disciplinary interests of the courts.

Accordingly, the order of the Appellate Division should be modified, without costs, by deleting the provision granting petitioner Finder shareholder and voting status and dismissing the petition as it relates to him and, as so modified, the order should be otherwise affirmed.

Chief Judge Kaye and Judges Titone, Smith, Ciparick and Wesley concur; Judge Levine taking no part.

Order modified, etc.