Shareholder oppression has long been a favorite topic of mine—for good reason. A cornerstone of business divorce litigation, a claim of minority shareholder oppression under BCL 1104-a often invites creative argument over shareholder agreements, fiduciary duties, and valuation. Catch up on the oppression doctrine, the well-worn reasonable expectations standard, and the latest turns in the caselaw here, here, and here.
Two recent cases, one from the Second Department and one from Suffolk County Justice Garguilo, shed light on some of the more nuanced issues in shareholder oppression litigation: the "equitable" prejudgment interest rate to be applied to a buyout under BCL 1118, and the relationship between a claim for dissolution and one for money damages.
Oppressed Shareholder Subject to BCL 1118 Buyout Gets 9% Prejudgment Interest Despite Delays
When a shareholder petitions for dissolution under BCL 1104-a, the remaining shareholders can under BCL 1118, elect to purchase the petitioning shareholder's shares at their fair value. Upon that election, the special proceeding for dissolution converts into a fair value proceeding to ascertain the value of the petitioner's shares.
Those fair value proceedings can take years. So prejudgment interest inevitably becomes a disputed item. BCL 1118(b) states that "the court, in its discretion, may award interest from the date the petition is filed to the date of payment for the petitioner's share at an equitable rate."
As Peter Mahler summarized recently here, despite their broad authority to select an "equitable rate," most courts considering interest in the context of a BCL 1118 decision simply default to the statutory rate of 9%. While a few cases have deviated from 9%, they mostly do so without much discussion.
The paucity of judicial analysis on an equitable interest rate in a BCL 1118 election makes a recent decision from Suffolk County Justice Garguilo, Bell v Lawrence R. Bell Assoc., Inc., No. 610065/2020 (Sup Ct, Suffolk County Feb. 19, 2025), notable.
The Petition, Election and Fair Value Award
Eric Bell sought judicial dissolution of Lawrence R. Bell Associates, Inc., alleging waste, oppressive conduct, and self-dealing by the other shareholders. The company elected to redeem his shares under BCL 1118, converting the case into a valuation proceeding. After years of discovery delays and motion practice, the parties jointly agreed in 2024 to appoint a neutral appraiser. The neutral appraiser determined the fair value of Bell's shares to be $3,019,000. The company paid $2.3 million shortly thereafter, leaving a $719,000 balance.
The Pre-Judgment Interest Dispute
Bell sought prejudgment interest at the statutory rate of 9%, dating back to his petition in August 2020. The company opposed, arguing that Bell caused substantial delays and had engaged in bad faith, including (i) filing excessive (unsuccessful) motions, (ii) requesting multiple adjournments of his own, and (iii) forming a competing company during the litigation.
The Burden Is on the Company to Show Bad Faith Warranting Less than 9%, Says the Court
Suffolk County Justice Garguilo started his analysis with the observation that "typically the 'equitable rate' mirrors the statutory nine percent interest rate." So far so good.
From there, the Court ventured into the unknown. The Court adopted a new standard, holding that the burden would be on the company to identify "bad faith" of the petitioner warranting a downward deviation from 9%.
In so doing, the Court acknowledged two cases where prior courts have awarded a less-than-9% interest rate in the absence of bad faith. But it distinguished those cases, finding that "the cases awarding prejudgment interest at a lower rate in the absence of a determination of bad faith involve cases in which a petitioner's shares could have been sold on the open market (see Matter of Balk v 125 W. 92nd St. Corp., 24 AD3d 194 [1st Dept 2005]), or where the company at issue loaned money and provided other benefits to the petitioner during litigation (see Whalen v Whalen 's Moving & Storage Co., 234 AD2d 552 [2d Dept 1996])."
No Cause to Deviate from 9%
With its new standard established, the Court held that each of the Company's complaints were insufficient to establish bad faith warranting a downward deviation from 9%.
- Filing motions—even ones that ultimately were unsuccessful—is not bad faith because Petitioner had the right to litigate the case aggressively.
- That Petitioner requested his own adjournments was not bad faith, because "respondents failed to adduce any evidence that petitioner's requests were merely feigned attempts to delay the proceeding."
- And forming a competing insurance company was not bad faith because Petitioner "retained an interest in finding remunerative employment during the litigation."
Will the Bell Standard Endure?
I have mixed feelings on Bell. On the one hand, it's refreshing to see a court attempt to establish some ground rules for the courts' broad discretion under BCL 1118(b). On the other hand, it seems clear thatthe standard created in Bell goes well beyond the statutory language and (as far as I can tell) case precedent.
Either way, Bell should be a warning to counsel and parties seeking interest in fair value proceedings under BCL 1118: come prepared to show why something other than the statutory 9% is appropriate.
Oppressed Shareholder Gets Dissolution, But Not Money Damages for Suspension Turned Termination
Shareholder oppression claims under BCL 1104-a have a complicated relationship with claims for money damages. We wrote on several occasions how claims for money damages can frustrate a claim for dissolution under BCL 1104-a (see Court Rejects Oppressed Shareholder's Bid for Dissolution or Buy-Out, Finds Money Damages Sufficient; Corporate Dissolution Petition Hits Back Burner in Favor of Earlier Filed Claims for Money Damages).
A recent decision from the Second Department, Lemczik v Artie's Auto Parts, Inc., 2025 NY Slip Op 03192 (2d Dept May 28, 2025), highlights the inverse risk: an oppressed shareholder seeking dissolution under BCL 1104-a may get dissolution, but nothing more.
The case concerns the dissolution of Arties Auto Parts, a Staten Island auto parts store with three shareholders: Petitioner (45%); his high school buddy Semler (45%); and Goldberg (10%).
The Alleged Oppression and Dissolution
From 2002 through 2017, the owners each worked at Arties and took relatively equal salaries and benefits.
In 2017, after years of relative success, Arties began to struggle financially due to competition from big box stores. Responding to those headwinds, Semler suggested that the owners lower their salaries, which Petitioner refused.
Met with Petitioner's recalcitrance, Semler and Goldberg used their majority to lower Petitioner's salary disproportionately more than their own. Shortly thereafter, they suspended Petitioner for 90 days due to an alleged incident with an employee. Petitioner demanded reinstatement, but the parties never mended their relationship: Petitioner never tried to return to work (even after the 90 days expired), and Semler never responded to his reinstatement demand.
In March 2020, Petitioner commenced a special proceeding for the dissolution of Arties under BCL 1104-a, contending that by disproportionately reducing his salary and suspending him, Semler and Goldberg defeated Petitioner's reasonable expectations of share ownership. Petitioner also sought an order directing Semler and Goldberg to "make petitioner whole for the salary that he has not received during the period that he has been frozen out."
Semler and Goldberg did not contest the dissolution petition, and in October 2020, the Richmond County Court entered an order dissolving Arties.
The Damages Demand and Referee's Decision
Petitioner then pressed his claim for money damages. And at the hearing before a special referee, Petitioner upped the ante. He sought not only $195,000 in unpaid salary, but also $237,500 in damages for Semler and Goldberg's allegedly freezing him out of the Corporation.
Petitioner cited Arties' shareholders agreement, which contained a mechanism by which the Corporation could repurchase Petitioner's shares at $3,125 per share ($237,000 in total). By freezing him out, Petitioner argued, Semler and Goldberg frustrated that process and got rid of Petitioner for nothing. (My two cents: this argument should have quickly found the wastebasket. No shareholder exercised the buyout rights in the shareholder's agreement, and therefore no obligation to pay Petitioner for his shares was triggered. By Petitioning for and obtaining dissolution under BCL 1104-a, Petitioner cemented his right to 45% of the proceeds in dissolution, not $237,000 based on a buyout that was never triggered).
The special referee held that Petitioner failed to establish damages. As to salary, the referee held that Petitioner failed to avail himself of his own power within the corporation. Petitioner, the referee held, had access to the checking account and authority to pay himself. His failure to do so defeated any after-the-fact claim for damages.
Addressing the $237,000 demand, the referee held that Petitioner failed to show "any ascertainable damages he may have sustained to the value of his shares as a result of Respondent's oppressive conduct."
The Second Department Affirms
In a brief decision issued on May 28, Lemczik v Artie's Auto Parts, Inc., 2025 NY Slip Op 03192, the Second Department affirmed the referee's determination. The Second Department held that Petitioner's claim for back salary was defeated by his failure to return to work following the end of the 90-day suspension.
And Petitioner's claim for the value of his shares failed, held the Second Department, because Petitioner "failed to submit an independent valuation to establish the current value of the stock as required by the shareholder agreement." Perhaps a less satisfying, but ultimately equally effective angle to defeat Petitioner's claim for lost share value.
Some Takeaways
Get counsel early. There's often a cold war period in closely-held business disputes, where the groundwork for a lawsuit is being laid. Lemczik highlights how claims can be lost in that period. Had the Petitioner been more aggressive pre-litigation (by paying himself and attempting to return to work following the expiration of his suspension), his damages claims would have had much more teeth.
Remember the surcharge. Notably absent from Lemczik is any reference to BCL 1104-a(d), which authorizes courts to impose a "surcharge upon the directors or those in control of the corporation upon a finding of willful or reckless dissipation or transfer of assets or corporate property without just or adequate compensation therefor." While I can't say that a surcharge determination would have been any different than the zero-damages calculation, petitioners would be wise to remember the statutory tools available to them.
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