Friday, August 14, 2015

Bontempo v. Lare (Md. Ct. of Appeals)

Filed: August 6, 2015

Opinion by: Robert N. McDonald


(1) The standard for determining whether a minority shareholder has been “oppressed” by the majority is the shareholder’s “reasonable expectations” upon obtaining an ownership interest in the company. This standard does not, however, dictate the type of equitable relief a trial court must provide, unless it is to be dissolution of the company.

(2) A breach of fiduciary duty to a corporation does not constitute fraud, absent a finding of fraud by the court. In this case, the majority shareholder’s self-dealing was a breach of his fiduciary duty, but because it did not involve deception, it did not rise to the level of fraud. The requested remedies of dissolution of the company and an award of punitive damages were therefore denied.  

Facts: See prior summary of Bontempo v. Lare (Md. Ct. Spec. App.).


The Court agreed with the opinions of the Circuit Court and the Court of Special Appeals on the standard for determining whether a minority shareholder has been “oppressed”: The court should look to the shareholder’s “reasonable expectations” at the time of acquiring an ownership interest in the company. If oppression has occurred, then dissolution of the company can be a remedy.

The Court of Appeals found, however, that even upon a finding of oppression, other, less punishing remedies can also be considered. In choosing a possible remedy, the court should take into account other stakeholders who may be affected, including other shareholders, managers, employees, and customers.

In this instance, Plaintiff argued that he had a reasonable expectation of future employment when he acquired a stake in the company. He said his investment, in the form of sweat equity, should trump his status as an at-will employee. The Court said a “reasonable expectation” can be used to determine whether oppression has occurred but does not dictate what form of equitable relief a court should grant. In addition, reinstating Plaintiff as an employee would not have been a viable option because he and Defendant could not reasonably have been expected to run a business together.

A provision in the shareholder agreement requires an employee to sell his stock upon termination “for cause.” Plaintiff argued that this provision effectively created an employment agreement, overriding his status as an employee at will. The Court was unpersuaded by this argument as well, noting that a buy-out requirement when a shareholder-employee is terminated for cause does not imply that the individual may be terminated only for cause.

On another mater, Plaintiff asked the Court to reconsider his allegations of fraud, which the Circuit Court had denied. He argued that Defendant’s breach of his fiduciary duty to the company constituted fraud as to the company itself and to Plaintiff as an oppressed shareholder.

The Court affirmed the lower court’s finding, noting that although Defendant’s self-dealing did constitute a breach of his fiduciary duty to the company, he made no attempt to conceal the activity. The illicit personal expenditures from the corporation’s accounts were entered into the company’s books, to which Plaintiff had full access.

Plaintiff made his allegations of fraud in connection with seeking dissolution of the company and an award of punitive damages for his benefit. As to the request for punitive damages, the Court said that they are not available as an equitable remedy and that, in any event, a finding of fraud would not support an award of punitive damages.

The full opinion is available in PDF.

Thursday, August 13, 2015

Len Stoler, Inc. v. Wisner (Ct. of Special Appeals)

Filed:  May 28, 2015

Opinion by Hotten, J.

Holding:  An automobile dealer may charge and retain an electronic titling fee and not violate the Credit Grantor Closed End Credit provisions of the Commercial Law Article.

Facts:  Appellee alleged an automobile dealer violated the Maryland Closed End Credit Grantor Law (the “CLEC”) of Sections 12-1001 et. seq. of the Commercial Law Article, which “governs closed end credit transactions and regulates interest rates, charges, default and other aspects of a credit transaction,” when it collected an electronic titling fee.  The dealer argued that Section 13-601 of the Transportation Article permits an automobile dealer to collect the electronic titling fee upon issuing permanent registration plates.  The Court found the provisions of the Commercial Law Article and the Transportation Article to be in conflict with one another.  

Analysis:  The Court discussed several principles of statutory construction when the plain language of statutes renders a conflict, including (i) an analysis of the context and legislative history of both statutes, (ii) the precedence of a more recent statute over an earlier statute and (iii) the well-established principle that a more specific enactment governs a more general statute.  

The Court reviewed a prior case interpreting the CLEC and the General Assembly’s response to the case, concluding that the General Assembly’s goal was to “create certainty in credit contracts” and allow a credit grantor to opt into one particular credit transaction statute while still allowing other Maryland laws and regulations to apply.  The Court found the Transportation Article to contain more specific language because it specifically refers to the fee associated with electronic registration while the CLEC refers to “reasonable” fees.  Further, the electronic titling fee provision of the Transportation Article was enacted a decade after the CLEC.   

The Court found the electronic titling fee to be an exception to CLEC and noted the consistency of this finding with prior interpretations of the Attorney General’s office. 

The full opinion is available in PDF.