## Facts

- Diane Straka, David Arcara, Jon Zucarelli, and Donald Lenda formed a closely held professional corporation to perform audit and tax work.
- Each founder held a 25% ownership interest; no written shareholder agreement governed management, compensation, or exit rights.
- Straka was expected to serve as head of information technology (IT) and, at formation, expected equal dignity and respect, active participation in management, shared staffing support, and fair compensation.
- Straka alleged repeated gender-related misconduct by an employee, Thomas Urbanek, including inappropriate comments; she complained, but the other shareholders did not initially address the behavior seriously.
- The corporation later moved Urbanek’s office away from other staff and retained human-resources contractors to conduct sexual-harassment training.
- Straka’s authority as head of IT was weakened when Zucarelli spoke to her in a demeaning way in front of employees about her software choice, and the corporation later selected different tax software without consulting her.
- Straka was not provided the staffing support she said had been promised for her work and responsibilities.
- Although Straka generated the second-highest revenue among the shareholders, she received the lowest compensation; expenses were allocated equally among the shareholders even though revenue generation differed.
- Without notice to Straka, the corporation added Paul Eusanio as a 20% shareholder, diluting Straka’s ownership from 25% to 20%.
- Straka resigned from the corporation in August 2016 and filed suit in New York Supreme Court (Erie County) alleging oppressive conduct and seeking dissolution and related relief.

## Issues

1. Whether the majority shareholders’ conduct—sex-based mistreatment and failure to respond to complaints, marginalization of Straka’s management role, unfair compensation practices, and dilution without notice—constituted “oppressive actions” under BCL § 1104-a.
2. If oppression was shown, whether the proper remedy was dissolution or alternative relief such as a court-ordered purchase of Straka’s shares.

## Decision

- The court found that Straka proved oppression under BCL § 1104-a based on conduct that defeated her reasonable expectations as a founding shareholder in a close corporation.
- The court treated equal dignity and respect for a female shareholder, meaningful participation in management, and fair economic treatment as reasonable expectations in this setting.
- The court determined that the pattern of exclusion, unequal pay despite strong revenue production, and dilution without notice supported relief under the oppression standard.
- Rather than ordering liquidation of the firm, the court granted relief that required a buyout of Straka’s shares, providing an exit on fair terms.

## Legal Principles

- Under BCL § 1104-a, oppression in a closely held corporation is measured by whether those in control defeat the complaining shareholder’s reasonable expectations formed when joining the venture.
- In a close corporation, reasonable expectations commonly include being treated as a co-owner with respect, having a real voice in management, and receiving fair economic returns tied to contribution and agreed practices.
- A course of conduct can be oppressive even if no single act alone would justify dissolution; courts may consider the total pattern of treatment, including exclusion from decisions, disparagement, and economic disadvantage.
- Diluting a shareholder’s interest by adding a new shareholder without notice can support an oppression finding, especially when it reduces the shareholder’s voting and economic position in a close corporation.
- When oppression is established, the court may choose a remedy other than dissolution—such as a compulsory buyout—to protect the shareholder while avoiding unnecessary termination of an ongoing business.

## Conclusion

Straka held a 25% stake in a newly formed accounting professional corporation and expected equal respect, management participation, staffing support, and fair compensation; the court found those expectations were defeated through gender-related mistreatment left inadequately addressed, marginalization of her IT role, unfair compensation despite strong revenue generation, and dilution without notice, and it granted relief under BCL § 1104-a by ordering a buyout rather than dissolving the firm.


Straka v. Arcara Zucarelli Lenda & Associates CPAs, PC, 92 N.Y.S.3d 567 (2019)