Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

SMALL v. GOLDMAN

June 23, 1986

Sylvia SMALL, Plaintiff,
v.
Gerson M. GOLDMAN, Ronald Goldman, Bee-Gee Realty Co., Inc., and Goldman Furniture Co., Inc., Defendants



The opinion of the court was delivered by: ACKERMAN

 This is an action between a stockholder of Bee-Gee Realty and the president and director of Bee-Gee Realty, Bee-Gee Realty, the president and director of Goldman Furniture and Goldman Furniture for alleged fraud in a lease entered into between Bee-Gee Realty and Goldman Furniture. On January 13, 1986, I dismissed Count 5 of plaintiff's complaint alleging violations of 18 U.S.C. § 1961(4) (RICO) because I found plaintiff's cause of action to be derivative of a claim properly brought only by the corporation. Plaintiff now brings this motion for reconsideration.

 Plaintiff contends that she should be permitted to maintain this action because she stands in a "special relationship" with the defendant which causes her claim to be direct, rather than derivative and because New Jersey law provides a direct mechanism whereby an oppressed shareholder of a closely held corporation can institute a direct action against the corporation. Defendant contends that these special exceptions do not apply and the general rule that a stockholder cannot sue in his own name must prevail.

 Once again, as this motion was originally brought as a motion to dismiss, I must accept as true the factual allegations of the complaint and may only dismiss if plaintiff can prove no set of facts which would entitle her to relief.

 The unanimous view of the courts which have considered the question is that only the corporation may bring a RICO action to redress injury suffered by the corporation unless the shareholder can also show some specific direct harm to her personally. Judge Edelstein of the Southern District of New York found the reasoning persuasive in Warren v. Manufacturers Nat'l Bank of Detroit, 759 F.2d 542, 544-46 (6th Cir.1985), as I did in my initial ruling on this issue. In Nordberg v. Lord, Day & Lord, 107 F.R.D. 692 (S.D.N.Y. 1985), Judge Edelstein, in holding that the shareholder had no standing to bring a RICO action, stated:

 
"If Congress intended to abrogate the common law and create a cause of action for the individual shareholder it could have done so explicitly. . . . The holding in Sedima [ v. Imrex, 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346] . . . is not inconsistent with the proposition that a shareholder must comply with the derivative action requirements of Rule 23.1 in order to redress corporate injury suffered 'by reason of' a violation of 18 U.S.C. § 1962. . . . Unlike the lower courts in Sedima, this court is not superimposing artificial constraints on the express language of Section 1964(c). By adhering to the derivative action requirement, this court is merely applying tried and true principles of shareholder standing, which Congress evinced no intent to abrogate. . . . Derivative action requirements . . . are not inconsistent with the policies underlying RICO and Section 1964(c)."

 Nordberg 699-700.

 See also, Dana Molded Products v. Brodner, 58 B.R. 576 (N.D.Ill.E.D.1986, Judge Getzendanner) (judgment creditor of bankrupt corporation may not bring RICO action for bankruptcy fraud committed against corporation itself); Rokeach v. Eisenbach, slip op., Dec 3, 1985 (N.D.Ill.E.D., Judge Plunkett) (a RICO cause of action for diminution in value of corp. belongs to the corp., and not to individual stockholders).

 As I stated in my first opinion in this case,

 
"statutes are to be interpreted with references to the common law and generally to be given their common law meaning absent some indication to the contrary" Warren v. Manufacturers Nat'l Bank of Detroit, 759 F.2d 542, 545 (6th Cir. 1985)."

 Thus, the viability of this shareholder suit must be evaluated in light of N.J. common law on this issue.

 Plaintiff distinguishes the results of the other cases directly addressing the question of shareholder standing in RICO actions by directing the court's attention to N.J.S.A. 14A:12-7(1)(c). Under this statute, the "oppressed shareholder" is a litigant newly created by legislative amendment to the New Jersey Corporation Act. See Exadaktilos v. Cinnaminson Realty Co., 167 N.J.Super. 141, 400 A.2d 554 (Law Div.1979). As the comments to the statute explain, this statute was amended in 1973 to permit an action

 
"in the case of a corporation having 25 or fewer shareholders if those in control have acted fraudulently or illegally, been guilty of mismanagement or abuse of authority, or acted oppressively or unfair toward minority shareholders. . . . The Commission agreed that in the context of a closely-held corporation our court should be free to look beyond ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.