## Facts

- A family-run, closely held trucking business operated through Grato & Sons Trucking Company, Inc., with family members holding shares and working in the business.
- After a serious accident and liability concerns, the family formed Eastern Motor Freight, Inc., which operated the same business with the same address, employees, and customers.
- Marital separation between Lois Grato and Louis Grato, Sr. caused conflict within the business; Lois was terminated and excluded from management.
- Lois Grato and Thomas Grato, minority shareholders, sued majority family shareholders and related entities, alleging oppression and breach of fiduciary duty and disputing share value.
- During the dispute, Louis Sr. formed International Motor Freight, Inc. (IMF), which took over nearly all business and assets of the earlier corporations.
- The majority shareholders voted to dissolve Grato and Eastern while continuing the enterprise through IMF; the minority did not control the dissolution decision.
- Lois was not informed of the continuation through IMF and accepted a valuation premised on dissolution rather than continuation of the business.
- The trial court found a fiduciary breach and valued plaintiffs’ interests based on the business as continued through IMF, but treated Lois’s ownership as 10% rather than 15%.

## Issues

1. Whether majority shareholders of a close corporation breach fiduciary duties by dissolving existing corporations and continuing the same business through a new corporation they control, using the former entities’ assets and goodwill.
2. If a breach is found, whether the minority’s interest should be valued based on the business as continued through the new entity or based on the value of the business under the prior entities immediately before dissolution.
3. Whether Lois’s ownership interest was 10% or 15% of the enterprise.

## Decision

- The Appellate Division affirmed the finding that the majority shareholders breached fiduciary duties to the minority under the circumstances by dissolving the corporations and continuing the business through IMF.
- The court modified the remedy, holding that valuation must be based on the value of the business as operated under the old corporate entities just prior to dissolution, not on the post-transfer business under IMF.
- The court rejected Lois’s cross-appeal and affirmed the trial court’s determination that her ownership interest was 10%.
- The case was remanded to adjust valuation consistent with the pre-dissolution benchmark.

## Legal Principles

- In a closely held corporation, controlling shareholders owe minority shareholders heightened fiduciary duties of loyalty and fair dealing and may not use control to oppress or extract value at the minority’s expense.
- Majority shareholders may not appropriate corporate opportunities, goodwill, customers, and operating assets by dissolving an entity and shifting an ongoing business to a new controlled corporation without fair treatment of minority owners.
- For remedial valuation in a fiduciary-breach transfer/continuation context, the appropriate measure is the value of the business immediately before the wrongful act (here, dissolution and transfer), rather than the business’s later value under the successor entity.

## Conclusion

The court held that the majority owners of a family close corporation breached fiduciary duties by dissolving the existing companies while continuing the same enterprise through a new corporation they controlled, but required the minority’s buyout valuation to be calculated using the going-concern value of the original businesses immediately before dissolution, and it upheld the trial court’s 10% ownership finding for Lois.


Grato v. Grato, 272 N.J. Super. 140, 639 A.2d 390 (N.J. Super. Ct. App. Div. 1994)