## Facts

- Pattern Analysis and Recognition Corporation (PAR), a New York corporation, adopted a recapitalization plan structured as a reverse stock split.
- The plan converted shares at a 4,000-to-1 ratio, leaving many small shareholders with fractional interests.
- The plan eliminated fractional shares by requiring holders of fractional interests to accept cash at a set price, regardless of consent.
- Minority shareholders, including Clark, alleged the plan functioned as a squeeze-out designed to remove small shareholders and that the cash-out price was unfairly low.
- Plaintiffs sought to enjoin implementation and moved for a preliminary injunction pending resolution on the merits.

## Issues

1. Whether a reverse stock split that predictably creates fractional interests and then compels a cash-out of those interests may be enjoined as an oppressive or otherwise unlawful use of corporate power under New York law.
2. Whether plaintiffs satisfied the requirements for a preliminary injunction, including likelihood of success, irreparable harm, and a favorable balance of equities.

## Decision

- The court granted a preliminary injunction barring PAR from implementing the reverse split and compulsory cash-out pending further proceedings.
- The court found plaintiffs made a sufficient showing that the transaction could be inequitable and abusive toward minority shareholders.
- The court concluded the forced termination of minority ownership constituted irreparable harm not fully remediable by money damages.
- The court determined delaying the recapitalization imposed less hardship on the corporation than allowing an irreversible squeeze-out to occur.

## Legal Principles

- New York courts may grant equitable relief against corporate actions that, though formally authorized, operate as fraud, oppression, or overreaching against minority shareholders.
- Business Corporation Law § 623(k) supports equitable intervention where a challenged corporate action is unlawful or fraudulent as to dissenting shareholders.
- Reverse stock splits and elimination of fractional shares are not invalid per se, but they must serve a legitimate corporate purpose and not function primarily to freeze out minority holders.
- A preliminary injunction requires a showing of likelihood of success on the merits, irreparable harm absent relief, and equities favoring the movant; irreversible loss of shareholder status supports injunctive relief.

## Conclusion

The court preliminarily enjoined PAR’s reverse stock split and mandatory cash-out of fractional interests because the plan plausibly operated as an oppressive squeeze-out of small minority shareholders and threatened irreparable loss of ownership rights before the legality and fairness of the transaction could be adjudicated.


Clark v. Pattern Analysis & Recognition Corp., 87 Misc. 2d 385, 384 N.Y.S.2d 660 (Sup. Ct. Oneida Cnty. 1976)