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Disrespectful & Unfairly Dispropriate Treatment of a Female Shareholder by Male Majority Shareholders in Closely Held Corporation Constituted Oppression

An Erie County, New York Supreme Court Justice recently held that the disrespectful and unfair dispropriate treatment of a female shareholder based upon her gender in a closely held corporation constituted oppression. In re Matter of Diane M. Straka, Index No. 807308-2017 (citing, Bus. Law. §1104(a)-(1).

In that case, the Plaintiff, Ms. Straka (a 25% shareholder in a closely held New York corporation) was able to prove at trial that she was subjected to disrespectful treatment based upon her gender. The other three shareholders were men. The Court found among other things, that:

  • When she first met one of the other shareholders, he asked Ms. Straka “…are you the one who makes the coffee;”

  • One of the shareholder’s posted a cartoon on his door that was deeming to women;

  • The Plaintiff stopped eating in the lunchroom because she was subjected to offensive comments; and,

  • One of the male shareholder asked if he could sit in her lap.

The Court held that a “female shareholder reasonably expects to be treated with equal dignity and respect as male shareholder forming the majority.” The Court found that the Plaintiff demonstrated that she was not treated with the same dignity and respect as the male shareholders. Furthermore, the Court held that the shareholders slow and inadequate responses to demeaning behavior marginalized and oppressed the Plaintiff.

I believe the outcome would be the same in New Jersey. Like New York, New Jersey uses the “reasonable expectations of the shareholder test” when determining whether or not a shareholder in a closely held corporation or limited liability company was subjected to unlawful oppression. See, Brenner v. Berkowitz, 134 N.J. 488 (1993); N.J.S.A. 14A:12-7(c); N.J.S.A. 42:2C-48(5).

Further, New Jersey’s Law Against Discrimination (“LAD”) prohibits intentional discrimination based upon race, creed, color, national origin, nationality, ancestry, age, sex (including pregnancy and sexual harassment), marital status, domestic partnership, or civil union status, affectional or sexual orientation, gender identity, or expression, military service, or mental or physical disability. See, N.J.S.A. 10:5-1, et. seq.

When enacting the LAD, the New Jersey Legislature mandated that Courts broadly and liberally construe the law because they recognized that discrimination causes personal hardships and is against public policy. N.J.S.A. 10:5-3. I believe that minority shareholders have a reasonable expectation to not be treated differently or unfairly based upon the aforementioned covered classifications. Hence, I agree that discrimination against minority members based upon their gender, age, color, religion, or other enumerated classification constitutes shareholder oppression.

New Jersey minority shareholders, like all employees who are discriminated against should also assert LAD claims. The LAD offers additional remedies, like mandatory counsel fees, pain and suffering, lost compensation, and punitive damages (under certain circumstances).

Most states, including New York have state statutes that offer protections to employees who are subjected to sexual harassment or other forms of unlawful discrimination.

In situations where the employee shareholder is also subjected to unlawful discrimination, those claims should also be raised in the litigation.

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About this Author

Scott Unger, Litigation Attorney, Stark Law Firm
Shareholder

Scott I. Unger is a Shareholder and member of Stark & Stark’s Litigation Group where he concentrates his practice on litigation arising out of business and commercial disputes. Mr. Unger regularly counsels business owners on the prosecution and defense of minority oppression litigation (corporate divorces), breach of contract cases, uniform commercial code (U.C.C.) litigation, consumer fraud claims, appellate practice, and estate litigation. Mr. Unger has extensive experience litigating cases in a variety of jurisdictions, including, New Jersey, New York, Pennsylvania, Ohio,...

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