Straka v. Arcara Zucarelli Lenda & Associates Cpas, P.C.

Facts

P formed D along with David A. Arcara, Jon V. Zucarelli, and Donald J. Lenda. Each was an officer, director, and 25% shareholder in the new venture, originally named 'Arcara, Zucarelli, Lenda & Straka CPAs, P.C.' Arcara served as president, with Zucarelli as vice-president, Lenda as treasurer, and P as secretary. P, Arcara, Zucarelli, and Lenda each made a $100 capital contribution to the corporation. They agreed to a compensation plan called the 'earnings matrix' that allocated client revenues and firm expenses. Each of the shareholders assumed specific administrative duties: Arcara handled human resources issues, Zucarelli handled day-to-day accounting operations, Lenda handled quality assurance and compliance issues, and P handled information technology (IT). The shareholders never executed a written shareholders' agreement. The bylaws of the corporation do not provide for the redemption of shares for a shareholder, except upon the death of a shareholder or the shareholder's disqualification from practicing the accounting profession. P expected (1) she be treated with equal dignity and respect as the male shareholders forming the majority; (2) she would actively participate in the operation and management of the company; (3) the new corporation would be collaborative and more efficient in regard to sharing of information and staff; and (4) compensation among the shareholders would be fair. P specifically expressed the importance of using an integrated software suite computer program. P met Urbanek and introduced herself. Knowing that she was a partner of the corporation, Urbanek said, 'Oh, are you the one who makes me coffee?' Soon thereafter, he told her to look at a cartoon he posted on his office door that was demeaning to women. P received complaints that Urbanek made unsolicited, demeaning remarks to other female employees as well. P and those women elected not to eat in the corporate lunch room as Urbanek's comments made them uncomfortable. Zucarelli volunteered to speak with Urbanek and did so but did nothing formal. P was also undermined in her IT work. Urbanek continued in his ways with women and also refused to use software. Urbanek told Arcara that he would not change his behavior. The majority shareholders ultimately relocated Urbanek's office away from the corporation staff. P gave formal verbal notice that she would be leaving the corporation. The corporation issued P a Schedule K-1 statement for 2016 reflecting her 25% ownership as of the end of that year, and both P and Zucarelli testified that Straka remains personally liable for corporate debts and obligations. The earning matrix resulted in P receiving the lowest amount of compensation despite having the second-highest billing and revenue in 2016. Under the earning matrix, the costs and expenses of Urbanek and Weiss were borne equally by all four shareholders, but only Zucarelli and Lenda were credited with the billings, collections, and receivables Urbanek and Weiss generated. The expenses of Urbanek and Weiss were higher than those of other employees, as they received automobile allowances and other perks given only to the shareholders. P also showed that the corporation was capable of paying shareholder dividends in 2016, but the majority opted to pay only wages based on the earnings matrix, thereby excluding P from sharing in the profits. The majority added Paul Eusanio as an equal shareholder, thereby diluting her interest in the corporation from 25% to 20% without P's knowledge. On February 2, 2017, the corporation sent P notice of a special meeting on March 7, 2017, the stated purpose of which was '1. To elect Directors of the Corporation [and] 2. To act upon such other business as may properly come before the meeting or any adjournment thereof.' P did not attend the March 7, 2017 meeting, and Arcara, Zucarelli, and Lenda elected Eusanio as a new director and shareholder.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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