A Lake George resort must dissolve as a corporation because majority shareholders looted company assets and took oppressive actions toward minority shareholders, such as trying to force them out, an appeals court has ruled.
An Appellate Division, Third Department, panel held that Twin Bay Village Inc., a lakeside summer resort operating as a closely held corporation, was correctly ordered to dissolve in 2016 by Warren County Supreme Court Justice Robert Muller, and that Muller was “fully justified” in setting aside certain corporate actions taken in past years by majority shareholders.
Justice Robert Rose, writing for a unanimous panel, directed the bulk of his opinion at a “merits” analysis of whether certain majority shareholders engaged in actions toward minority shareholders such that judicial dissolution could rightfully be ordered under state Business Corporation Law § 1104-a.
The law, used by Muller after a referee conducted merits findings, permits a court to dissolve a closely held corporation where those in control of it have engaged in oppressive actions toward complaining shareholders or have looted, wasted or diverted corporate assets for noncorporate purposes, Rose wrote.
Rose, joined by Justices William McCarthy, Elizabeth Garry, Michael Lynch and Eugene Devine, ruled that majority shareholders had committed both looting of assets and oppressive actions that breached fiduciary duties to lesser shareholders.
The resort, owned and operated by members of the Chomiak family, opened in 1957. The family formed a corporation in 1970. By 2004, Vladimir Chomiak’s son and daughter, Leon Chomiak and Leonora Chomiak, were the beneficial owners of a combined 48 corporate shares. Meanwhile, Leo Chomiak and his two daughters, Tatiana Chomiak Kasian and Tamara Chomiak, owned the remaining 52 shares.
In the underlying action, Vladimir Chomiak and his children petitioned Muller for judicial dissolution while Leo Chomiak (who has since died) and his children opposed it.
After losing in the lower court, Leo Chomiak and his children appealed.
Addressing first whether the majority shareholders committed oppressive conduct, Rose noted in Chomiak v. Chomiak Kasian, 523944, that Muller had found that the minority shareholders “reasonably expected the [majority shareholders] to fulfill their fiduciary obligations to the minority shareholders and to equally protect the interests of all.”
The panel then cited conduct from 2001, 2004 and 2009 that it said “intentionally diluted and ultimately sought to extinguish petitioners’ ownership interest in the corporation.”
At a 2009 annual company meeting, for instance—which the minority shareholders did not attend—the remaining Chomiaks amended bylaws to provide that a shareholder who ceased to be actively involved with the corporation, as determined by a majority of shareholders, could be forced to sell his or her shares, according to the court.
Later, the minority Chomiaks were told it had been unanimously determined that they had ceased to be actively involved with the company and, therefore, they were required to sell their shares back to the corporation for a “fair value” of $1,139 per share, Rose wrote.
Notably, the lower court had found that the price was “considerably less” than the fair market value, Rose added, and that when Leo Chomiak ceased to be actively involved in the corporation after the 2009 summer season, the amended bylaws were never invoked against him.
Regarding corporate looting, the appeals panel noted the lower court had found the majority shareholders “removed significant amounts of cash from the corporation, as evidenced by the large number of cash deposits made into their personal banking accounts, and then funneled a portion of that same money back into the corporation in the form of loans.”
“Although [majority shareholders] point to a promissory note as evidence that the loans were made,” Rose then wrote, “the note merely states that the corporation agrees to pay back ‘all loans borrowed’ from [majority shareholders] without specifying the amount of such loans or when the loans were made.”
In affirming Muller and the referee, the panel concluded in its Aug. 3 opinion that the “Supreme Court was fully justified in setting aside the 2004 issuance of 100 shares and respondents’ alleged loans to the corporation, as well as the bonuses and the salary checks that respondents chose not to cash.”
Vladimir Chomiak and his children were represented by Benjamin R. Joelson, an associate at the Akerman firm in Manhattan. Joelson could not be reached.
Tatiana Chomiak Kasian, of Philadelphia, and Tamara L. Chomiak, of Bolton Landing, were both pro se in the appeal. Neither could be reached.