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Minority Shareholder Verdict Upheld

By Oren D. Saltzman, Esq.

In August, 2015, the Maryland Court of Appeals ruled in the case of David S. Bentempo v. Clark J. Lare, et. al., which was originally decided in the Circuit Court for Howard County. This case related to a business dispute between Quotient, Inc. partners David S. Bontempo, a 45 percent minority shareholder, and the majority shareholders, Clark J. Lare and Jodi Lare.

Mr. Bontempo claimed that Mr. Lare took advantage of his majority ownership interest by drawing a large salary, making loans to a pharmacy owned by Mrs. Lare and using the corporation’s funds to pay for the Lare’s household expenses, personal legal fees and to make loans to Mrs. Lare’s business. No equal or pro rata payments were made to Mr. Bontempo for similar expenses.

Believing that Mr. Bontempo’s job performance was insufficient, Mr. Lare fired him in March, 2010. Mr. Bontempo then filed an action against the Lares and the corporation including counts asserting derivative claims on behalf of the corporation.

The trial court found in favor of Mr. Bontempo for damages, unpaid corporate distributions and attorneys’ fees, but declined to find that Mr. Lare acted fraudulently so as to warrant an award of punitive damages to Mr. Bontempo.

Citing from Corporations and Associations Article of the Maryland Annotated Code, Sec. 3-413, the Court of Appeals determined that although the term “oppressive acts” is not specifically defined in the statute, the term is implied within the statute to describe adverse treatment of a minority shareholder by a majority stockholder in a closely held business.

Under Sec. 3-413 generally the remedy for such oppressive conduct is dissolution of the corporation. But the Court of Appeals noted that the statute refers to a court acting as a “court of equity” which meant that a court could exercise equitable powers over the case including remedies less drastic than dissolution such as reinstatement of employment or other equitable remedies.

The Court explained: “[A] minority shareholder who reasonably expects that ownership in the corporation would entitle him to a job, a share of corporate earnings and a place in corporate management would be ‘oppressed’ … when the majority seeks to defeat those expectations and there exists no effective means of salvaging the investment.”

Concluding that Mr. Bontempo had those expectations and that those expectations had been defeated, the Court of Appeals determined that he had been wronged as a result of his firing. However, notwithstanding this, the Court declined to award reinstatement or salary-related damages to Mr. Bontempo.

In this case, although the Court of Appeals may have expanded the definition of an “oppressed” minority shareholder, the Court chose not to act to remedy the wrong committed in a meaningful way.

Oren D. Saltzman is Managing Member of Adelberg Rudow. He concentrates his practice in the areas of business, commercial and corporate law, taxation, mergers & acquisitions, banking, estate planning and administration, bankruptcy and guardianship. He can be reached at 410.986.0864 or OSaltzman@Adelberg.com.

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