Wisniewski v. Walsh, an interesting unpublished decision by a New Jersey appellate court, involves more than 10 years of a family dispute over a business. The litigation covers a wide range of issues, including how siblings, an in-law and cross claims by a sister and brother for shareholder oppression pitted each family member against the other.
Three siblings — Patricia Wisniewski, Norbert Walsh and Frank Walsh — were equal shareholders in a business started by their father in 1952. By 1973, the oldest brother Frank was in the leadership role while the other brother, Norbert, began as a truck driver. In 1978, Frank and Norbert both functioned as officers and were joined by Raymond Wisniewski, their brother-in-law. Frank left in 1992 to serve a prison sentence for bribery and fraud. While he was away, Norbert took control and discontinued paying Raymond and Patricia's bills that had previously been paid by the company. Norbert then shifted a billing function to a company of his own and attempted to exclude Patricia from a real estate purchase. When Frank objected to the exclusion, Norbert then excluded both Frank and Patricia from the purchase.
Beginning in 1995, litigation commenced when Patricia Wisniewski initially filed against her two brothers. Shortly thereafter, one of the two brothers, Norbert, filed his own case against his sister and brother Frank. Over the next five years, the litigation continued.
Shareholder Oppression Litigation Continues
Norbert remained involved in the business, but the parties disputed whether his involvement was constructive or not. In the litigation, the parties battled over who was the oppressed shareholder, who contributed to the success of the business, who should be bought out, what should be the valuation date, the method and result of the court appraisal of fair value, the meaning of fair value, the application of the discount for lack of marketability, the extraordinary circumstances as the basis for a discount and more.
The case proceeded in two phases. The first phase resulted in the court finding that it was Norbert who had oppressed his sister. Rather than order Norbert to buy out Patricia's interest, the court ordered Norbert to sell his interest to her and to Frank's estate. In the typical shareholder oppression case, the oppressing party is a controlling party and is ordered to buy the minority interest. In this instance, to have Norbert ordered to buy Patricia's interest would have shifted control to Norbert — the party seen as having committed the oppressive acts. In effect, shifting control to Norbert could have been viewed as rewarding his conduct.
In the second phase, the court had to determine the value of Norbert's interest. As part of that appraisal proceeding, the court had to consider the date as of which the value was to be viewed and the "fair value" on that date. At the end of the first proceeding, the court found a value based on the date of the initial filing of the case. In addition, the court determined the value based on expert reports but derived it without a hearing to "evaluate the relative credibility of the experts."
The trial court was subsequently reversed on the date of value used by the court in addition to failing to hold a hearing with an examination of the experts. The appellate court also directed the trial court to consider a different date of value. The court stated that the continued involvement of Norbert during the five-year period of litigation should also be considered as a matter of equity. However, the appellate court left open what the appropriate date should be.
Appeals Phase Creates New Fair Value Concerns
Following the remand to the trial court, a hearing was held. Out of the hearing came a new decision by the trial court which produced yet a new appeal on the following issues:
- What was the appropriate date of value?
- What was the definition of fair value for the case?
- What was the appropriate method of valuation?
- Should there have been a discount for lack of marketability (DLOM) under extraordinary circumstances? For insight on this topic, a previous Shareholder Rights Blog describes numerous discount considerations.
In subsequent blogs, these questions — as addressed by the appellate court — will be considered. Shareholder rights attorneys are at the forefront of these types of disputes that are known for their complexity amongst family members. The range of questions that this case raises is relevant to any family business dealing with an internal business dispute.