12 Mass. App. Ct. 201
SYNOPSIS: Defendant shareholder and defendant corporation appealed judgment of the Superior Court (Massachusetts) for plaintiff shareholders in action to determine dividends to be paid by defendant corporation, to remove defendant shareholder as a director, and to order that defendant shareholder reimburse defendant corporation for penalty taxes assessed against it.
-Defendant shareholder used his veto power to prevent plaintiffs, all other shareholders, from declaring dividends in defendant close corporation.
-In consequence, the government assessed tax penalties against defendant corporation.
-Plaintiffs requested lower court to determine dividends to be paid, to remove defendant shareholder as a director, and to order him to reimburse defendant corporation for penalty taxes assessed against it.
-The lower court ordered defendant corporation to pay dividends and defendant shareholder to reimburse corporation for penalty taxes, and it retained jurisdiction.
-On appeal, the court affirmed.
Shareholders in a close corporation owe one another a fiduciary duty.
-The majority shareholders in a close corporation may ask judicial protection from a minority shareholder who acts oppressively.
-Defendant shareholder's actions exceeded what was reasonable. The lower court might retain jurisdiction to direct the dividend policy until parties agreed on their own program.
OUTCOME: The court affirmed the lower court's judgment because defendant shareholder's use of his veto power as minority shareholder to prevent any declaration of dividends violated his fiduciary duty to plaintiff shareholders.
Interested in learning how to get the top grades in your law school classes? Want to learn how to study smarter than your competition? Interested in transferring to a high ranked school?