Plaintiffs, Ann Stuparich et al., appealed a summary judgment that denied Plaintiffs’ request for involuntary dissolution of Defendant company, Harbor Furniture Manufacturing, Inc., under Corporations Code Section 1800 (b)(5). Plaintiffs argued that their participation in Harbor Furniture was frustrated by their sour relationship with their brother, Defendant Malcolm Tuttleton, Jr.
Synopsis of Rule of Law.
An involuntary dissolution is an extreme remedy that will be granted only when there is strong evidence of an abuse of discretion by the majority.
Plaintiffs are two sisters who owned a majority of the non-voting shares and a smaller percentage of voting shares of Harbor Furniture. Their brother, Malcolm, Jr., controlled Harbor Furniture with his 51.56% voting share ownership. The shares were passed down by family members to both parties. Harbor Furniture was comprised of two business ventures: a furniture company which lost money, and a mobile home park which was lucrative. Malcolm, Jr. actively participated in the business early on, and he was able to collect a majority of shares by buying his father’s stock at a reduced rate. He collected a salary (as did his wife and son), but the company paid dividends to the shareholders. Defendants sometimes neglected to keep Plaintiffs informed of all business activities, and Plaintiffs never had an active role in running the company. Plaintiffs at one point mistakenly believed that they had had a majority of voting shares of the company, and they called for a vote to divi
de the two ventures. The vote was refused, and Malcolm, Jr. repeatedly refused to buy out the Plaintiffs’ shares. The relationship between the parties became strained to the point where Malcolm, Jr. physically injured one of the Plaintiffs. Plaintiffs then brought this action to dissolve the company, arguing that they were given no role in the company while Malcolm, Jr. has a vested interest in continuing the venture (he draws a salary), and the relationships were strained beyond repair. The trial court sided with Defendants and granted their summary judgment.
The issue is whether Plaintiffs raised triable issues of fact that would justify an involuntary dissolution of Harbor Furniture.
Plaintiffs did not raise triable issues of fact to justify the dissolution, and therefore the summary judgment in Defendants’ favor was proper. The involuntary dissolution of the company is a severe remedy that a minority shareholder is not automatically entitled to. The threshold has to be set high to justify a court to enact such a remedy. In this case, there was nothing illegal or abusive in Malcolm, Jr.’s purchase (at a reduced rate) and control of a majority of the company shares because Malcolm, Sr. is entitled to sell his shares at whatever value he desires. There was not enough evidence presented by Plaintiffs to indicate that the furniture business was never going to be profitable. There is also no right for a minority shareholder to force a majority shareholder to purchase their shares if they are dissatisfied.
The court does not want to allow involuntary dissolution in cases where there is simply a difference of opinion between the minority and the majority. The majority must engage in conduct that puts the minority shareholder in a position where there is no other alternative.