Dodge v. Ford Motor Co

Brief Fact Summary. Plaintiff shareholders, Dodge et al., brought an action against Defendant corporation, Ford Motor Company, to force Defendant to pay a more substantial dividend, and to change questionable business decisions by Defendant.

Synopsis of Rule of Law. The purpose of a corporation is to make a profit for the shareholders, but a court will not interfere with decisions that come under the business judgment of directors.

Facts. Defendant corporation was the dominant manufacturer of cars when this case was initiated. At one point, the cars were sold for $900, but the price was slowly lowered to $440 – and finally, Defendant lowered the price to $360. The head of Defendant corporation, Henry Ford, admitted that the price negatively impacted short-term profits, but Ford defends his decision altruistically, saying that his ambition is to spread the benefits of the industrialized society with as many people as possible. Further, he contends that he has paid out substantial dividends to the shareholders ensuring that they have made a considerable profit, and should be happy with whatever return they get from this point forward. Instead of using the money to pay dividends, Ford decided to put the money into expanding the corporation.

Issue. The issue is whether Plaintiff shareholders can force Defendant to increase the cost of the product and limit the money invested into expansion in order to pay out a larger dividend.

Held. Plaintiffs are entitled to a more equitable-sized dividend, but the court will not interfere with Defendant’s business judgments regarding the price set on the manufactured products or the decision to expand the business. The purpose of the corporation is to make money for the shareholders, and Defendant is arbitrarily withholding money that could go to the shareholders. Notably, Ford did not deny himself a large salary for his position with the company in order to achieve his ambitions. However, the court will not question whether the company is better off with a higher price per vehicle, or if the expansion is wise, because those decisions are covered under the business judgment rule.

Discussion. The lead plaintiffs, the Dodge brothers, had a motive outside of their position as minority shareholders. Their own business competed with Defendant, and larger dividends would have helped finance their business while draining resources from Defendant. There could then be an argument that Ford’s decision was in the best interests of Defendant corporation.