HANSON v. CORALLO et al

Filing 69

OPINION/ORDER that Defendants request for a protective order is denied; that the Court will hold a teleconference, to be initiated by Plaintiff, on February 17, 2017 at 2:00 PM. Signed by Magistrate Judge Cathy L. Waldor on 2/15/17. (DD, )

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

JOHN HANSON,
Plaintiff,

Action No. 2:14-cv-4604 (KSH)(CLW)

v.
ANTHONY CORALLO and RIGGING
CONSULTANTS, INC.,

OPINION & ORDER

Defendants.

Consistent with the Court’s Order, ECF No. 63, for expedited briefing on discovery
disputes, this matter comes before the Court on the parties’ competing submissions. Plaintiff seeks,
ECF No. 66, certain discovery while Defendants seek, ECF No. 68, a protective order barring the
same in light of the District Judge’s Order, ECF No. 54, that New York law governs this action.
The Court heard from the parties on January 18 and 23, 2017 and, for the reasons set forth below,
declines to enter a protective order and directs the parties to proceed with outstanding discovery.
Notwithstanding the parties’ thorough—and, at times, contentious—written and oral
submissions, the issue presented is a straightforward one amenable to swift disposition without
prejudging the merits of any claim for corporate dissolution. In short, Defendants resist discovery
that extends beyond a certain cut-off date based on Plaintiff’s request for dissolution and maintain
that, prior to the District Judge’s ruling that New York law applies, they actually provided
discovery broader in temporal scope than was required as a result of the prospect of the application
of New Jersey law. Plaintiff, on the other hand, suggests that his claim for dissolution was
inartfully plead, possibly futile, and, in any event, is but one of several claims presented which,
taken together, warrant discovery beyond the scope proposed by Defendants.

Plaintiff alleges that this action arises out of his employment at a scaffolding sales and
consulting concern, his minority shareholder status, and his eventual termination without cause for
objecting to Defendant Corallo’s mismanagement and self-dealing. (Compl., ECF No. 1, ¶¶ 4-17.)
Plaintiff raises the following personal and derivative claims: minority shareholder oppression;
breach of contract; wrongful termination; tortious interference with business relations; refusal to
permit inspection of books and records; breach of fiduciary duty; and corporate waste. (Id., ¶¶ 1865.) In particular, in his claim for shareholder oppression, Plaintiff seeks “[d]issolution of Rigging
Consultants, Inc. under the applicable corporate dissolution statute[.]” (Id., First Count, ¶¶ 19-22.)
At the outset, Defendants make clear that they do not oppose “Plaintiff’s request for
electronic versions, including Bates Stamps, of the financial books and records previously
provided for the years 2010, 2011, 2012, 2013, 2014 and 2015.” (Letter, ECF No. 68, at 1.) Rather,
Defendants oppose Plaintiff’s request that they provide “updated books and records beyond the
six years of records that have already been provided” because Plaintiff has already received all
that to which he was entitled under New York law. (Id.) That is, Defendants assert that “New York
law provides a valuation date based upon the date Plaintiff filed his action[]” such that the valuation
date is the day before the action was filed—here, July 21, 2014—and such that “dissolution claims
entitle Plaintiff to the corporate books and records for the three preceding years.” (Id., at 4-5
(citations omitted).) Defendants maintain this position whether Plaintiff seeks statutory or common
law dissolution and otherwise characterize Plaintiff’s subsequently filed dissolution action in New
York Supreme Court, Bronx County, as an attempt to receive a later valuation date. (Id., at 2, 4.)
Plaintiff opposes “any discovery cutoff date whatsoever,” and emphasizes that he has
presented diverse claims and requests for relief that warrant discovery independent from that which
is available in the context of a claim for dissolution. (Letter, ECF No. 66, at 2-6.) In particular,

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Plaintiff asserts that, “[v]iewed generally, the Complaint seeks a determination (i) if Mr. Hanson
was wrongfully terminated, (ii) how many shares of Rigging Consultants Mr. Hanson owns, and
(iii) how much Mr. Hanson is owed, in terms of unpaid distributions (adjusted for Mr. Corallo’s
waste) and salary [Mr. Hanson] was wrongly denied.” (Id., at 3.) Moreover, Plaintiff contends that
the instant action “is not a corporate dissolution case” because the Court is not empowered—
whether by New York law or common law—to grant such relief. (Id., at 5-6 (citations omitted).)
Turning to the applicable law, as Plaintiff contends, ECF No. 66 at 5-6, a plain reading of
the statutes suggests that his request for dissolution was futilely plead because it should have been
filed in New York in the manner prescribed by statute. Indeed, the venue provision provides that
“[a]n action or special proceeding under this article shall be brought in the supreme court in the
judicial district in which the office of the corporation is located[.]” N.Y. Bus. Corp. Law § 1112.
And, contrary to the terms of other subsections, the request here was not 1) brought by petition 2)
that specifies the statutory provisions and reasons for dissolution and 3) which is accompanied by
an order to show cause. See N.Y. Bus. Corp. Law §§ 1104-a, 1105, 1106. Defendants thus find
themselves in the odd position of arguing, ECF No. 68 at 4-5, for the vitality of Plaintiff’s
dissolution claim, and offer the proposition that “the court is afforded broad latitude in fashioning
an alternative remedy, such as requiring the buyout of the Petitioner’s interest even where the
Respondent has not set forth his statutory right to do so under [N.Y. Bus. Corp. Law] § 1118.”
Zulkofske v. Zulkofske, 36 Misc. 3d 1206(A), 957 N.Y.S.2d 267, at *3 (Sup. Ct. 2012) (citations
omitted). It must be recognized, however, that “a federal court may abstain from hearing a case or
claim over which it has jurisdiction to avoid needless disruption of state efforts to establish
coherent policy in an area of comprehensive state regulation.” Friedman v. Revenue Mgmt. of
N.Y., Inc., 38 F.3d 668, 670-71 (2d Cir. 1994) (citing Burford v. Sun Oil Co., 319 U.S. 315, 332

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(1943) and upholding district court’s dismissal based on abstention where complaint sought
dissolution under N.Y. Bus. Corp. Law § 1104).
Mindful that “Magistrate Judges are given wide discretion to manage cases and to limit
discovery in appropriate circumstances[,]” Forrest v. Corzine, 757 F. Supp. 2d 473, 477 (D.N.J.
2010) (collecting cases), the Court concludes that, based on the parties’ arguments and applicable
law, two related considerations militate against limiting discovery in the manner sought by
Defendants. First, Plaintiff presents six claims for relief and it is apparent that this action is
properly characterized as one for breach of contract and wrongful termination, as opposed to one
solely seeking dissolution. That is, the complaint concentrates on the former while only briefly
and inadequately requesting the latter. It would be harsh and absurd to restrict discovery to a certain
period in any action that raises the specter of dissolution without respect to other claims presented.
Second, Defendants’ request is more amenable to disposition via a motion in limine, jury
instruction, or the parties’ joint final pretrial order. That is, assuming the dissolution claim may be
properly adjudicated in federal court and further assuming that some evidence may not properly
bear on that claim, then Defendants will have ample opportunity at a later stage to seek such a
restriction. To grant Defendants such relief now would deprive Plaintiff of discovery to which he
is entitled on the other claims. Thus, Defendants’ request is denied and discovery shall proceed
consistent with all pending claims.

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ACCORDINGLY, IT IS on this 15th day of February, 2017,
ORDERED that Defendants’ request for a protective order is denied; and
ORDERED that the Court will hold a teleconference, to be initiated by Plaintiff, on
February 17, 2017 at 2:00 PM.

s/Cathy L. Waldor
CATHY L. WALDOR
United States Magistrate Judge

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