Collins v. Tabs Motors of Valley Stream Corp.

Tabs Motors of Valley Stream Corp. (Tabs), respondent and third-party plaintiff, sought to enforce a shareholders agreement through specific performance. This decision addressed only the counterclaim of Tabs against the petitioners and its third-party claim against co-executors of Connie Collins Estate (Estate). 

Background.

Tabs is a family-owned auto repair business. Four family members, including the Estate, owned 25%, or 50 shares each, of Tabs. In 2012, Steve, one of the shareholders, suggested the four owners enter into a shareholders agreement (Agreement). After discussion and time for each shareholder to review the agreement with counsel, the Agreement was signed in December 2013. In October 2019, two shareholders, the Estate and Michael, filed a petition for dissolution. This triggered a buy-sell provision in the Agreement. In December 2019, the corporation held a shareholders’ meeting to determine whether Tabs would exercise its option to purchase shares the Estate and Michael owned. The two remaining shareholders voted in favor of buying the shares of the other two shareholders. The Estate and Michael made it clear that they would not voluntarily give up their shares. Tabs brought a counterclaim against Michael to enforce the sale and a third-party action against the executors of the Estate. Tabs moved for a summary judgment to enforce the sale.

Shareholders agreement buy-sell provision.

The Agreement has a provision that, if a petition to dissolve was filed, then the corporation first and then the other shareholders have the option to purchase all (but not less than all) of the petitioning shareholders’ shares at a price equal to the stock value as determined under Schedule B of the Agreement, which fixed the price at $5,250 per share, being also the last certificate of stock value. All shareholders signed Schedule B. The $5,250 value was double the value of a comprehensive appraisal prepared only two years prior. Additionally, Stella, a co-executor of the Estate, executed an affidavit affirming the value of the Estate’s 50 shares at $262,500, or $5,250 per share for 50 shares.

The Agreement also expressly excluded selling shareholders from voting to exercise their option at a shareholders’ meeting. A quorum was set at 75% of shareholders entitled to vote.

Discussion.

The motion asked the court to award specific performance to enforce the Agreement. The petitioner and third-party defendants argued the Agreement should not be enforced because of unconscionability, fiduciary duty breach, and quorum issues. Tabs had demonstrated that no genuine issue was in dispute requiring a trial and award of performance.

Unconscionability.

Facts did not support the claim of deception. The fact that Steven was the only lawyer in the family did not render it unconscionable. The petitioner and the defendants had 18 months to consult an attorney regarding the Agreement. The Agreement did not unreasonably favor Steven. 

Breach of fiduciary duty.

The petitioner and defendants had already brought claims in Nassau County of looting, waste, and withheld distributions. Those claims had already been dismissed. “Furthermore, even if the claims were true, they would not invalidate the buy-sell provision.”

Quorum.

Under the Agreement, the petitioning shareholders were not allowed to vote on the decision on whether the corporation would exercise its option. The quorum of 75% of the voting shareholders was met. New York courts regularly granted specific performance to enforce the buy-sell provisions. “The Shareholders Agreement is enforceable and fundamentally fair. Monetary damages would be insufficient in this case, and specific performance is appropriate.”

The motion for summary judgment for specific performance was granted.