Brief Fact Summary. Defendants, Atlantic Properties, Inc. and minority shareholder Dr. Louis Wolfson, appealed a trial court ruling that prevented Wolfson from vetoing dividend payments and required him to pay the tax fees assessed against the company.
Synopsis of Rule of Law. Minority shareholders owe majority shareholders a fiduciary duty in the same manner that majority owners owe minority shareholders, and therefore the majority can seek judicial intervention for decisions that are unjustifiable for the corporation’s interests.
Issue. The issue is whether Wolfson owes Plaintiffs the same fiduciary duty a majority would owe a minority shareholder.
Held. The court held that the determining factor for the fiduciary duty owed is whether a party would be considered a controlling party. Because Wolfson was the controlling party in that he alone prevented the dividend payouts despite no real business justification, the court affirms that a fair dividend should be declared. Wolfson was unreasonable and did not demonstrate utmost good faith and loyalty to the business.
Discussion. The court had no problem with the by-law provision that allowed for a minority to veto dividends, but rather in the manner in which he utilized his powers to unreasonably prevent the allowance dividends in the face of tax penalties.