When Denial of Books and Records Becomes Part of a Fiduciary Breach in Close Corporations

Access to financial records is important to minority shareholders in closely held corporations. A recent New York Supreme Court Commercial Division decision demonstrates that the denial of books and records to such minority shareholders could be used to support claims for oppression, breach of contract, and breach of fiduciary duty.

In Lehan v. Montgomery (Sup. Ct., Suffolk County 2025), the dispute arose from a closely held corporation operating a car wash business in Long Island. The plaintiff invested $220,000 in exchange for a 22% ownership interest, while the defendant retained a 78% controlling stake and full operational control of the business. The parties’ relationship, like many close corporation ventures, was grounded in trust and informal expectations: the plaintiff’s capital was to be used for improvements, and he was to receive a weekly draw while participating, at least indirectly, in the enterprise’s success.

The court’s factual findings after trial describe a steady deterioration of that relationship, driven by the majority shareholder’s conduct. The defendant appropriated the plaintiff’s investment for personal use, failed to pay the agreed compensation, disregarded corporate formalities, and ultimately sold the business without notice to the minority owner while diverting the proceeds for his own benefit. This pattern of behavior was not merely mismanagement; it reflected a systematic exclusion of the minority shareholder from any meaningful participation in the corporation.

Within that broader pattern, the court gave particular attention to the defendant’s decision to deny the plaintiff access to corporate information. The evidence established that the defendant “elected to bar [the plaintiff] from … rightful access to the books and records of the company.” This exclusion occurred while the defendant was simultaneously representing that the business was not profitable, thereby placing the minority shareholder in a position where he was forced to rely on the majority’s representations without the ability to verify them.

While the court did not treat this denial as a standalone legal violation, it used the denial along with other evidence to find for plaintiff. First, the exclusion from books and records, together with the failure to pay compensation, was deemed part of a “positive and unequivocal” repudiation of the parties’ agreement, supporting a finding of material breach of contract. Second, the denial of access was incorporated into the court’s oppression analysis under Business Corporation Law § 1104‑a, where the minority shareholder’s exclusion from examining the books was viewed as evidence that his reasonable expectations as an investor were being defeated.

Most significantly, the court situated the denial of access within the fiduciary framework governing close corporations. It emphasized that a majority shareholder occupies a position of trust and is under a duty to safeguard corporate assets and “provide an open and honest account of the business operations” to the minority shareholder. The failure to provide such transparency, particularly when coupled with financial misconduct, supported the conclusion that the majority shareholder breached his fiduciary duty. The court ultimately found that the defendant’s diversion of funds, concealment of financial information, and exclusion of the minority owner collectively constituted a clear breach of the duties of good faith and loyalty.

The decision underscores a critical point for close corporation disputes. Denial of access to books and records is rarely dispositive on its own, but it is highly probative when considered in context. When a majority shareholder both controls the company’s finances and restricts access to information, the denial itself becomes part of a broader evidentiary showing—one that may establish concealment, reinforce claims of self-dealing, and substantiate allegations that the minority shareholder has been effectively frozen out of the enterprise.

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