Meiselman v. Meiselman

• Decision Date: 27 September 1983
• Docket Number: No. 594A82,594A82
• Citation: 307 S.E.2d 551,309 N.C. 279
• Court: North Carolina Supreme Court
• Parties: Michael H. MEISELMAN v. Ira S. MEISELMAN, Lawrence A. Poston, Paul Edward Lloyd, Eastern Federal Corporation, Radio City Building, Inc., Center Theatre Building, Inc., Colony Shopping Center, Inc., General Shopping Centers, Inc., M & S Shopping Centers of Florida, Inc., Martha Washington Homes, Inc., and Try-Wilk Realty Company, Inc.

Page 551

307 S.E.2d 551

309 N.C. 279

Michael H. MEISELMAN v. Ira S. MEISELMAN, Lawrence A. Poston, Paul Edward Lloyd,

Eastern Federal Corporation, Radio City Building, Inc.,

Center Theatre Building, Inc., Colony Shopping Center, Inc.,

General Shopping Centers, Inc., M & S Shopping Centers of

Florida, Inc., Martha Washington Homes, Inc., and Try-Wilk

Realty Company, Inc.

No. 594A82.

Supreme Court of North Carolina.

Sept. 27, 1983.

Fleming, Robinson, Bradshaw & Hinson, P.A. by Russell M. Robinson, II, Charlotte, for plaintiff-appellee.

Blakeney, Alexander & Machen by J.W. Alexander, Jr., Charlotte, for individual defendants.

Farris, Mallard & Underwood, P.A. by Ray S. Farris and David B. Hamilton, Charlotte, for corporate defendants. FRYE, Justice.

In this appeal, we must determine whether Michael Meiselman, a minority shareholder with a substantial percentage of the outstanding stock in a group of family-owned close corporations, is entitled to relief under N.C.G.S. § 55-125(a)(4) and N.C.G.S. § 55-125.1, the statutes granting trial courts the authority to order dissolution or another more appropriate remedy when "reasonably necessary" for the protection of the "rights or interests" of the complaining shareholder. In so doing, we will articulate for the first time the analysis a trial court is to apply in resolving suits brought under these two statutes. We must also determine whether the trial court erred in concluding that Ira Meiselman, Michael's brother, committed "no actionable breach of fiduciary responsibility" as an officer or director of the defendant corporations through his sole ownership of the stock in a corporation holding a management contract with one of the family corporations. After outlining in detail the pertinent facts in this case and the development of the law in the area of corporate dissolution, we will address first the question of whether the trial court erred in denying Michael's claim for relief under N.C.G.S. § 55-125(a)(4) and N.C.G.S. § 55-125.1.

I.

Michael Meiselman, the plaintiff and complaining minority shareholder in this action, and Ira Meiselman, one of the defendants in this action, are brothers. Michael, the older of the two, was born in 1932 and has never married. Ira was born ten years later. He is married and has two children. The two men are the only surviving children of Mr. H.B. Meiselman, who immigrated to the United States from Austria in 1913. Over the years, Mr. Meiselman accumulated substantial wealth through his development of several family business enterprises. Specifically, Mr. Meiselman invested in and developed movie theaters and real estate. Several of the enterprises were merged into Eastern Federal Corporation [hereinafter referred to as Eastern Federal], a close corporation, most of the stock of which is owned by Ira and Michael. In addition, there are seven other corporations ¹ which, together with Eastern Federal, comprise the Meiselman family business and are the corporate defendants in this case.

Beginning in 1951, Mr. Meiselman started a series of inter vivos transfers of corporate stock in the various corporations which, generally speaking, he divided equally between his two sons. However, in March 1971 Mr. Meiselman transferred 83,072 shares of stock in Eastern Federal to Ira, while Michael received only 1,966 shares in the corporation. The next month Michael transferred the control of his stock in the family corporations to his father in trust, a trust Michael could revoke without his father's consent only if he married a Jewish woman. ²

The effect, then, of these transfers of stock from Mr. Meiselman to his two sons was to give Ira, the younger son, majority shareholder status in Eastern Federal while relegating Michael, the older son, to the position of minority shareholder. In addition, Ira owns a controlling interest in all of the other family corporations except General Shopping Centers, Inc., the corporation in which he and Michael hold an equal number of shares.

Michael owns 29.82 percent of the total shares in the family corporations, although he contends that once the shares attributed to intercorporate ownership (shares the various corporations own in each other) are distributed between himself and Ira, his ownership would amount to about 43 percent of the family business. The book value of all of the corporations was $11,168,778 as of 31 December 1978. The book value of Michael's shares in all of the corporations using the 29.82 percent figure, was $3,330,303 as of that date.

As is true of many close corporations, the two shareholders--Michael and Ira--were employed by the family corporations. Michael began working for the family business in 1956 and Ira began nine years later in 1965. The extent of Michael's participation in the family corporations from 1961 until 1973 is not clear. Michael contends that he has worked continuously for the family business except for an interim of about one and one-half years. Ira would characterize Michael's participation differently. At any rate, both sides agree that from 1973 until 1979 Michael was employed by the family business. It is also clear that Ira fired Michael in September 1979, less than one month after Michael filed suit against Ira in connection with Ira's sole ownership of the stock in a corporation which held a management contract with Eastern Federal.

In the certified letter Ira sent to Michael informing Michael that he was being fired, Ira also notified his brother that his car insurance, his hospital insurance and his life insurance policies were all being terminated. In addition, Ira asked his brother in that same letter to return his "Air Travel credit card" and "any other corporate cards you might have as any further use of them is not authorized." Ira then sent his brother a second certified letter demanding payment within ten days to Eastern Federal of Michael's note of $61,500 plus interest of $2,028.66 and the balance of Michael's open account, $19,000. Furthermore, Lawrence A. Poston, Vice President and Treasurer of Eastern Federal stated that the effect of the letter terminating Michael's employment "also was to terminate Michael's participation in the profit-sharing trust."

In his deposition, Ira essentially admitted that he fired his brother in response to the lawsuit Michael had brought challenging Ira's sole ownership of Republic Management Corporation [hereinafter referred to as Republic], the corporation with which Eastern Federal had contracted to provide management services. However, Ira indicated that Michael's loss of employment was only an incidental effect of his termination of the employment contract between the two corporations, a corporate decision he felt was justified in light of the threat of continuing litigation on this matter. Ira stated that "[t]he purpose and the effect of the letter [terminating Michael's employment] were principally to advise [Michael] that we were terminating the arrangement between Eastern Federal and Republic and, correspondingly, that it would alter, affect, or eliminate his source of compensation as applied to Republic."

Republic was formed in 1973. As Ira stated, Republic was a "successor to two, or possibly three, previous companies of the same genre that had operated within the family framework back [309 N.C. 284] to 1951." Ira also stated that he did not own all of the stock in those predecessor corporations, that "there were some that I remember in the early years that Michael might have owned 100% of that I didn't." The record indicates that Michael was one of the initial shareholders in 1951 of Fran-Mack Management, Inc., one of those predecessor corporations and that Ira did not become a shareholder in that particular corporation until 31 December 1963.

According to Ira, the function of Republic "was to provide a means whereby, primarily now, administrative and primarily home office expenses utilized on behalf of all the companies, or all the individual operating units, were apportioned back to those individual operating units or operating companies." In short, Republic was "nothing more than a tool" through which the administrative costs incurred in operating the various Meiselman business units--including over 30 theaters--were apportioned.

As noted above, Republic agreed to perform these management services as a result of a contract entered into between it and Eastern Federal. Specifically, Republic agreed to perform the management services in exchange for 5.5 percent of Eastern Federal's theater admissions and concession sales. Although Republic paid Michael an annual salary from 1973 until he was fired in 1979, Michael did not own any of the stock in the management corporation; Ira owned all of it. Although Republic earned profits some years while losing money in others, the net result was that it had retained earnings of over $65,000, earnings which only Ira as sole shareholder in Republic would enjoy and in which Michael claims he is entitled to share. It is this ownership to which Michael objects and upon which he bases his shareholder's derivative claim that Ira has breached the fiduciary duty he owes to the corporate defendants.

We turn now to an examination of the tenor of the relationship existing between Michael and Ira. In his brief, Ira contends "[t]he Record on Appeal reflects no bitterness and hostility between Michael and Ira, other than that which Michael generated after Mr. Meiselman's death in an effort to secure a redistribution of his father's patrimony." Further, he contends that "Michael was never denied participation in the management of the corporate defendants," that, on the contrary, Michael "voluntarily limited his participation in their affairs."

On the other hand, Michael vehemently denies Ira's characterization of their relationship and of his participation in the management of the corporations. In his deposition, Michael stated that his job has been ...