Potential client sits down with business divorce lawyer and says, “I’m a minority shareholder in XYZ Corp. I’ve been completely frozen out by the majority. Can you help me?” The lawyer says, “Absolutely. New York law gives you the right to ask the court to dissolve the corporation as a remedy for minority shareholder oppression. You can also ask the court to compel a buyout even if the majority doesn’t elect to do so. Tell me, what did the majority do and when?” Potential client starts to answer, “About ten years ago they fired me, threw me off the board, took me off the K-1s, . . .” at which point the lawyer cuts in, “What? Ten years ago? Why have you waited so long?”

Potential client explains that he tried to negotiate a buyout, but when that didn’t happen he took a job in California where he lived for the next eight years while the freeze-out stayed back-of-mind, went through a difficult matrimonial divorce, and that eventually he returned to New York, saw that his old company was flourishing, and finally decided to speak with a lawyer.

The lawyer responds, “Before we go any further, I need to check out the statute of limitations to see if you still can bring an oppression action. I have some concern.”

Some concern is right. In the typical fact pattern giving rise to an oppressed minority shareholder’s petition for judicial dissolution, there’s little mystery about the occurrence and timeline of the kinds of events typically constituting oppressive conduct:

• The petitioner’s employment is terminated.
• The petitioner is removed as an officer of the corporation.
• The petitioner is removed as a director of the corporation.
• The petitioner’s shares are improperly diluted.
• The petitioner’s distributions are shorted or cut off.

The list goes on. The point is, given the discrete, fixed-in-time nature of the oppressive acts, rare is the minority shareholder who doesn’t know they’re being oppressed when they’re being oppressed. Just as rare is the minority shareholder who doesn’t take some remedial action — whether negotiating a buyout or other out-of-court resolution, or suing — if not right away, within a reasonably short period of time.

Which partially explains the infrequency of court decisions addressing challenges by controlling shareholders to judicial dissolution petitions by oppressed minority shareholders based on the statute of limitations.

The rest of the explanation comes from the applicable six-year statute of limitations (CPLR 213[1]) under which, as the Appellate Division held in 1996 in DiPace v Figueroa, the six years runs from the “instances of alleged wrongdoing adverted to by [the petitioner] as grounds for dissolution.” If an oppressed minority shareholder hasn’t gotten satisfaction and hasn’t sued within six years of whatever misfortune befell him, her, or it, chances are there’s little or nothing worth suing over.

Or maybe not. At least, that must have been the thinking of the petitioner in Apostolopoulos v Oxford Associates Group, Inc., who, 14 years after allegedly being frozen out, sought judicial dissolution under New York’s minority shareholder oppression statute of two real estate holding corporations co-owned by herself and her co-owner. The lower court initially denied a motion to dismiss the petition as time-barred. Earlier this month, however, the Appellate Division reversed the lower court’s ruling and dismissed the petition as untimely. Let’s take a closer look.

The Lower Court Proceedings

In 2019, Vasaliki Apostolopoulos filed a petition seeking judicial dissolution of two realty corporations having an alleged aggregate value of $40 million. The petition alleges that she was President of both corporations at their inception in the 1990s and was involved in their day-to-day management “until several years ago” when the other shareholder, George Kyriak, “took over the Corporations,” terminated her employment, cut off her salary, removed her as an officer and director, denied her access to corporation records, and barred her from the business premises.

The petition also references court orders in 2008 and 2009 — one in a books and records proceeding she filed and the other in a State Insurance Fund action — referencing Apostolopoulos’ co-ownership. At a hearing on Apostolopoulos’ application for a temporary restraining order at the outset of the case, her attorney represented that she had “not received a penny” or “seen a tax return” of the corporations in ten years.

The respondents moved to dismiss the petition as barred by the six-year statute of limitations. Kyriak’s supporting affidavit alleged that he and Apostolopoulos in 2005 agreed to “part ways” after he allegedly discovered that she and her husband had diverted funds from other businesses they co-owned; that afterward she was not involved and sought no involvement in the business of the corporations; and that in 2009 she agreed to “relinquish” her ownership in exchange for Kyriak’s agreement not to sue her and her husband for the alleged diversions and also in exchange for his resolving certain employee-related liabilities of the other businesses. Kryiak offered no documentary proof of the agreement.

In her reply affidavit, Apostolopoulos alleged that Kyriak’s affidavit was the “first and only notice to me that he unilaterally deemed himself the sole owner of Oxford and Lancaster.” Her attorney’s reply submission, labeling her dissolution claim as one “sounding in breach of fiduciary duty,” argued that Kyriak’s affidavit was the “first open repudiation by Respondents of their breach of their fiduciary duties that has been communicated to Petitioner” which “tolled” the accrual of the statute of limitations. As summarized by my highly paid research assistant, ChatGPT,

the open repudiation doctrine pertains to situations where a fiduciary, such as a trustee or agent, explicitly and unmistakably declares their refusal to fulfill their fiduciary obligations. This can lead to the beneficiary or principal treating the fiduciary relationship as terminated and seeking legal remedies for the breach of fiduciary duty. The doctrine recognizes that such a clear repudiation of fiduciary obligations can be seen as a breach in itself, allowing the harmed party to take legal action.

The lower court’s May 2020 order denied respondents’ dismissal motion, finding without any further analysis that “there are grounds for dissolution within the statute of limitations” based on the Respondents’ contention that Apostolopoulos “has no ownership interest, and therefore no right to participate in the management of the corporate entities.”

On Appeal, the Court Dismisses the Petition as Time-Barred

Kyriak and the corporations appealed the denial of their motion to dismiss. Their appellate brief argued that Apostolopoulos’ claim for corporate dissolution based upon her alleged freeze-out in 2005 accrued no later that 2007 or 2008 when she filed a books and records proceeding. They also argued that the open repudiation doctrine did not salvage the dissolution petition’s allegations of a 2005 freeze-out, evidencing a clear-cut repudiation of the alleged fiduciary relationship at that time.

Apostolopoulos’ appellate brief maintained that the statute of limitations was tolled until post-commencement of the litigation in 2019 when Kyriak filed his affidavit repudiating Apostolopoulos’ ownership interest in the corporations. Prior to that time, her brief contended, “she has always relied on [Kyriak’s] prior statements . . . acknowledging her 50% shareholder interest in the corporate entities.”

The Appellate Division agreed with Kyriak and the corporations that the petition’s dissolution claim was barred by the statute of limitations. The court’s analysis unfortunately is little more than formulaic and none of the precedents cited concerns the tolling of the statute of limitations in dissolution cases:

Here, the appellants demonstrated, prima facie, that the alleged oppressive acts occurred at least 10 years prior to the commencement of the instant proceeding, and, therefore, the cause of action for dissolution pursuant to Business Corporation Law § 1104-a was time-barred (see DiPace v Figueroa, 223 AD2d at 952). The burden then shifted to the petitioner to raise a question of fact as to whether the statute of limitations has been tolled or is otherwise inapplicable, or whether the petitioner actually commenced the proceeding within the applicable limitations period (see Edem v Wondemagegehu, 175 AD3d at 467; Coleman v Wells Fargo & Co., 125 AD3d 716, 716). The petitioner failed to meet this burden. Contrary to her contention, she failed to establish a basis for an equitable tolling based on a breach of fiduciary duty (see Ilan Props., Inc. v Benishai, 205 AD3d 541, 542; cf. Franklin v Hafftka, 140 AD3d 922, 924). Accordingly, the Supreme Court should have granted the appellants’ cross-motion to dismiss the cause of action for dissolution pursuant to Business Corporation Law § 1104-a.

Would Apostolopoulos Have Fared Better Under the Continuing Wrong Doctrine?

Before we jump to the conclusion that Apostolopoulos’ dissolution petition was dead on arrival based on the statute of limitations, let’s consider whether the outcome might have been different if she had relied on the continuing wrong doctrine instead of the open repudiation doctrine.

The continuing wrong doctrine pops up in tort, contract, and other legal contexts as an exception to the general rule that the statute of limitations runs from the time of the breach though no damage occurs until later. The doctrine is said to be predicated on continuing, unlawful acts rather than the continuing effects of earlier unlawful conduct. The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.

The doctrine ultimately played an inconsequential part in another shareholder oppression/dissolution case I wrote about a few years ago called Matter of Yin Shin Leung Charitable Foundation v Seng. There, the court found that the doctrine applied to the respondents’ use of a disputed “special account” and that even though the respondents, outside the limitations period, disclosed the formation of the account and their intent to use corporate funds for an allegedly improper purpose, the subsequent disbursements were not automatic consequences of the initial decision and therefore were not time-barred.

A case that’s closer to the fact pattern in Apostolopoulos, in which the continuing wrong doctrine played a far more consequential role, is Baur v Baur Farms, Inc., decided in 2010 by the Iowa Court of Appeals. The court there reversed the lower court’s grant of summary judgment dismissing on statute of limitations grounds a minority shareholder’s lawsuit seeking dissolution based on the majority shareholder’s alleged oppressive conduct.

The Baur court noted that many of the acts outside the applicable limitations period about which the minority shareholder complained, including his removal as an officer, were discrete acts that could have been challenged when they occurred. Nonetheless, applying the continuing wrong doctrine the court held that those “same acts can be viewed as specific and supportive evidence of the alleged plan by [the majority shareholder] to freeze out [plaintiff], a minority stockholder,” leaving him “with no return on [his] interest in the corporation for an indefinite period of time or selling to the majority shareholder at whatever price [he] will offer.”

Reading between the lines of the lower court’s decision in Apostolopoulos, one can discern an echo of Baur in the court’s focus on the respondents’ “conten[tion], at this time, that petitioner has no ownership interest, and therefore no right to participate in the management of the corporate entities.” In other words, as in Baur, the lower court seemed to suggest that the repudiation of Apostolopoulos’ ownership interest, which she claimed was first expressed by Kryiak in the course of the litigation, was a continuation of the alleged wrongful freeze-out that commenced many years earlier. Unfortunately, we’ll never know if the outcome would have been any different had Apostolopoulos argued the continuing wrong doctrine.

On a final note, whenever there’s a dispute over someone’s ownership interest in a closely held business entity, it’s second nature to ask right out of the box, What do the K-1s show? In the context of a statute of limitations defense to an ownership claim, if the complainant knew he, she, or it was not receiving K-1s outside the limitations period, that can be strong evidence in support of dismissal. There’s a caveat in that the K-1 inquiry only applies to pass-through tax entities such as an S corporation or entities that file partnership returns. The reason there’s no mention of K-1s in Apostolopoulos is that the subject corporations filed C corp tax returns.

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