Second Department Affirms Interlocutory Judgment Declaring Plaintiff, As Representative Of Estate, 50% Owner of Defendant

On October 6, 2021, the Second Department issued a decision in Matter of Coven v. Neptune Equities, Inc., 2021 NY Slip Op 05334, Second Department Case No. 2018-14172, affirming an order of Justice Timothy Driscoll, adjudging that Walter Coven was the owner of 50% of the shares of defendant at the time of his death and that the petitioner, as representative of Coven’s estate, had standing to maintain the action to dissolve. The Court explained:

Only the holders of shares representing 20% or more of the votes of all outstanding shares of a corporation may commence a proceeding for dissolution pursuant to Business Corporation Law § 1104-a (see id. § 1104-a[a]; Miglio v Schildbach, 303 AD2d 470, 471; Shea v Hambros PLC, 244 AD2d 39, 52-53). "The burden of establishing the requisite ownership interest in a corporation that is the subject of a dissolution proceeding rests with the petitioner" (Matter of Iceland Inc., 97 AD3d 579, 579). "In reviewing the Supreme Court's findings of fact, this Court's authority 'is as broad as that of the [hearing] court' and includes the power to 'render the judgment it finds warranted by the facts, taking into account in a close case the fact that the [hearing] judge had the advantage of seeing the witnesses'" (Matter of Pappas v Corfian Enters., Ltd., 76 AD3d 679; 679, quoting Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492, 499; see Matter of Capizola v Vantage Intl., 2 AD3d 843, 844).

Here, the petitioner established by a preponderance of the evidence that Walter owned 50% of Neptune's shares at the time of his death (see Matter of Pappas v Corfian Enters.,Ltd., 76 AD3d at 680). Although neither the credit shelter trust nor Walter were listed as shareholders on Neptune's corporate ledger or issued stock certificates, "[t]he mere fact that a corporation did not issue any stock certificates does not preclude a finding that a particular individual has the rights of a shareholder" (Zwarycz v Marnia Constr., Inc., 130 AD3d 922,923; see Kun v Fulop, 71 AD3d 832, 833; Blank v Blank, 256 AD2d 688, 693). "In the absence of any stock certificate, a court must examine other available evidence to determine the validity of a putative shareholder's claim" (Zwarycz v Marnia Constr., Inc., 130 AD3d at923). "Such evidence may include 'corporate tax forms, or any other indicia of shareholder status'" (Matter of Thomas, 179 AD3d 98, 102-103, quoting Kun v Fulop, 71 AD3d at 834).

After Stanley's death, for every year between 2011 and 2016, Neptune's S Corporation tax returns provided a Schedule K-1 reporting Walter as a shareholder. Neptune cannot take a position in this proceeding contrary to the position taken on its tax returns (see Matter of Tehan [Tehan's Catalog Showrooms, Inc.], 144 AD3d 1530, 1532; Matter of Capizola v Vantage Intl., 2 AD3d at 845; see also Mahoney-Buntzman v Buntzman, 12 NY3d 415, 422; Man Choi Chiu v Chiu, 125 AD3d 824, 825-826). Although the appellants contend that the decision to provide Schedule K-1s to Walter stemmed from Siegel's legal advice, which they maintain was erroneous, the appellants did not contest from the time of Stanley's death in2 011 until Walter's death in 2016, that Walter had inherited the shares in Neptune (see Kun v Fulop, 71 AD3d at 834;cf. Hunt v Hunt, 222 AD2d 759, 760). Further, Staci, as a corporate officer of Neptune, authorized the electronic filing of those tax returns.

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