Berwald v. Mission Development Company case brief

Berwald v. Mission Development Company
United States District Court, Southern District of New York, 1993.
1993 WL 126427 (S.D.N.Y.).

(Dividends, Repurchases, Retained Earnings)

FACTS
-P, stock owners of D co. brought suit to compel liquidation of D and the distribution of assets to stockholders.
-D holds 7 million shares of tidewater oil co, formed for purpose of acquiring shares of Tidewater (holding co. -- tax purposes)
1954: Tidewater discontinued payment of cash dividends, thus effectuating discontinuance of D’s income. (Expansion policy > Dividend Policy)
-Management: unwise to distribute shares as a dividend,to do so would decrease proportionate ownership of Tidewater.
-Tidewater proposed to exchange shares of $1.20 preferred for common stock.  Getty and D excluded from offer.
RULES
Extreme relief of receivership to wind up a solvent going business is rarely granted.  
→ To obtain it, there must be a showing of imminent danger of great loss resulting from fraud or mismanagement.  Like caution is dictated in considering application to compel corp to make a partial distribution.
(No showing of fraud here)
P: conflict of interest.  High income taxes; Getty not interested in getting dividends

Issue:  Is Tidewater’s policy adopted in furtherance of own corporate interest (making D’s stockholders not subject to any wrong?)
Holding:  Yes, the sole corporate purpose of Mission is and has been to hold Tidewater stock.  (Buying for growth and not income).

ANALYSIS
-Tidewater’s cash has since 1960 been largely devoted to capital improvements, and in opinion of management, funds were not available for dividends