Brenner v. Berkowitz

Supreme Court of New Jersey · 1993 · Corporations

634 A.2d 1019 (1993)

Updated August 22, 2026

CorporationsClose corporationsMinority shareholder remediesclose corporationminority shareholderoppressionfraudillegality

Facts

Arbee was a close corporation formed by Irving Resnick, who gave effective control of management to Howard Berkowitz and distributed shares so that, after Resnick's death, Brenner held 40 shares and the Berkowitzes together held 60 shares. Brenner sued under N.J.S.A. 14A:12-7(1)(c), alleging that the majority engaged in misconduct including misuse of a supplier discount, unrecorded cash sales to employees without sales tax, failure to file tax forms for some temporary workers, use of non-union workers under assumed union names, excessive salary payments to Berkowitz without formal approval, exclusion of Brenner from corporate affairs, and unfair termination of her son and future daughter-in-law. The evidence also showed that Arbee flourished under Berkowitz's management, with major growth in sales, employees, and corporate value. The trial court found several improper acts but concluded they had ceased, did not substantially harm Brenner's interest, and warranted only an injunction and Brenner's reinstatement as a director.

Issue

Under N.J.S.A. 14A:12-7(1)(c), must a minority shareholder prove oppression or ongoing misconduct to obtain relief for fraud, illegality, mismanagement, or abuse of authority in a close corporation? If the statute is triggered, when may a court grant remedies such as dissolution or a buyout under N.J.S.A. 14A:12-7?

Rule

N.J.S.A. 14A:12-7(1)(c) is written in the disjunctive: fraud, illegality, mismanagement, abuse of authority, or oppressive or unfair conduct may each independently support relief in a close corporation. However, not every technical violation is enough; the plaintiff must show a nexus between the misconduct and harm to the minority shareholder or her interest in the corporation, considering factors such as the seriousness of the violation, risk to the investment, and frustration of reasonable expectations. The misconduct need not be ongoing at the time of trial. Remedies under N.J.S.A. 14A:12-7 are discretionary, dissolution is reserved for the most egregious cases, and courts retain broad equitable authority, including in appropriate circumstances ordering a buyout as an alternative to dissolution.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maple Harbor Fixtures, Inc., a close corporation in Newark with 6 shareholders, is controlled by Lena Ortiz and her brother. Minority shareholder Dana Pike owns 30% and proves that Lena falsified vendor invoices to skim cash from the corporation, but Dana cannot show the conduct was aimed at her personally or that Lena tried to freeze her out.

Under the governing rule, which is the best statement about Dana's ability to invoke relief?

Explanation. The statute is disjunctive: fraud, illegality, mismanagement, abuse of authority, or oppression may each independently support relief. The minority shareholder need not prove oppression when fraud is shown. But she still must show a nexus between the misconduct and harm to her or her interest in the corporation.