Opinion ID: 2308852
Heading Depth: 1
Heading Rank: 9

Heading: Brenner's Removal from the Board

Text: Finally, although the removal of plaintiff from the Board of Directors had frustrated her reasonable expectations in the corporation, the court determined that appointing a receiver or provisional director as permitted by the statute would not be feasible given Arbee's consistent growth. Thus, the court ordered that plaintiff be reinstated as a Director. Although the court found that plaintiff had proven the illegal and fraudulent acts of (1) misapplication of discounts, (2) improper assumption of union identity, (3) failure to collect tax on employee sales, and (4) failure to file W-2's and 1099's on behalf of temporary employees, it nonetheless concluded that prior to trial the corporation had taken corrective action to ensure that those acts of misconduct had ceased. Relying on Balvik v. Sylvester, 411 N.W. 2d 383 (N.D. 1987), the court determined that for relief to be granted a continuing course of misconduct must be shown. Thus, the court held that since the above mentioned bases for oppression have ceased, the court [could not] award statutory relief. The court did, however, enjoin Berkowitz from engaging in future misconduct in violation of his fiduciary duties. More importantly, the court did not believe that considering Arbee's size, the few isolated acts of mismanagement had substantially affected Brenner or put her investment in the corporation at risk. In denying defendants' motion for a directed verdict, the court nonetheless observed: If you're talking about Joe's Delicatessen and they're giving away five pounds of bologna out the back door every day, that might be a substantial defalcation, it might be a gross mismanagement ... [but] in the size of a corporation like this [it] would be de minimis, wouldn't it? What I'm suggesting to you is, that there has to be some equation here. It seems to me it has to have something to do with the degree to which the alleged mismanagement substantially affects the minority stockholder because there's a two-way street here. The statute not only protects the minority stockholder, but I view it also as a protection, as well, perhaps not intentionally drawn, for the majority. To buy out a substantial minority interest is not an easy task, particularly today when bank financing is very difficult to come by. So it seems to me that since the burden is traditionally on the plaintiff, anyway, and since I owe an obligation to the majority stockholders as well as the minority, it just seems all to fall into the same conclusion that it has to be substantial. At the conclusion of the trial, the court granted Brenner an injunction against future misconduct by Arbee and ordered her reinstatement to the Board. In the absence of an appropriate motion, the court believed it had no authority to order a buy-out under the statute. The court did not award counsel fees or costs. Plaintiff filed a motion for reconsideration. First, she asked the trial court to determine that Berkowitz's misconduct had been sufficiently substantial to qualify as oppressive within the meaning of the statute. Second, she requested the court to exercise its inherent authority to order a buy-out by ordering defendants to purchase Brenner's shares or by ordering the Berkowitzes to sell their shares to Brenner. In denying plaintiff's motion for reconsideration the court again set forth the core of its reasoning: In one case, if you are operating a delicatessen the removal of a hundred dollars a week from the till might be an exceptionally vexatious thing. If someone was dealing in a substantial corporation the removal of a hundred dollars a week, though wrong and not condoned by this Court, when replaced back certainly has to be viewed in a sense that it would not necessarily put the minority stockholder at risk. So we have to look at it realistically and under the fact[-]sensitive aspect of all these cases.