Brief Fact Summary. Radom (P) and his sister Neidorff (D), sole shareholders of a music publishing corporation, deadlocked the election of directors and declaration of dividends due to dislike and distrust.
Synopsis of Rule of Law. Where corporate dissolution is authorized by statute in the case of deadlock or other specified circumstances, it is not necessarily mandated. The court will examine the situation with the shareholders and public’s wellbeing also in mind.
The prime inquiry is, always, whether judicially imposed death will be beneficial to the stockholders or members and not injurious to the public.View Full Point of Law
Issue. If the principals of a close corporation deadlock on important issues such as election of directors, will petitioning for dissolution, which is statutorily authorized, mandate a dissolution?
Held. (Desmond, J.) No. Granting dissolution is at the discretion of the forum court. The court will examine whether the conflict has prevented efficient management or the furthering of the corporation’s goal. The court will also determine the detrimental impact if any, dissolution may have on shareholders and the public. For this case, the conflict has not prevented effective management and operation of the corporation, the corporation is in fact prospering. Most beneficial for the shareholders is continue operations rather than dissolution. Radom (P) has other remedies available to recover his salary. The petition is dismissed without a hearing on the grounds of the contentions of the parties. Affirmed.
Dissent. (Fuld, J.) Granting dissolution is at the discretion of the courts, but should only be exercised after fully hearing the facts of the case. The petition has a prima facie case for dissolution and should at least be investigated. Denying the petition does not solve the issues of the deadlocks and will probably create even more acrimonious litigation. Radom (P) and his petition deserve a full hearing.
Discussion. Most courts have attitude of not wanting to dissolve corporations which were a creation of law, they will strictly scrutinize suits like these. The majority ignored the deadlock problems. If dissolution were granted, Radom’s (P) business acumen as an asset would go with his person along with one-half of all the other assets. Neidorff (D) would face an inequitable situation from this. One potential solution would be for Radom (P) to buy out Neidorff (D) at fair market value as a condition to dissolution.