Aliberti v. Green

• Decision Date: 15 February 1978
• Citation: 372 N.E.2d 534,6 Mass.App.Ct. 41
• Court: Appeals Court of Massachusetts

Page 534

372 N.E.2d 534

6 Mass.App.Ct. 41

John ALIBERTI et al. v. Sidney GREEN et al. Appeals Court of Massachusetts, Middlesex.

Argued Nov. 15, 1977.

Decided Feb. 15, 1978.

Robert F. Lucas, Wakefield, for plaintiffs.

Robert T. Harrington, Lowell, for defendants.

Before HALE, C. J., and KEVILLE and GRANT, JJ.

HALE, Chief Justice.

The five plaintiffs in this case, each the holder of one share of common stock issued by Hillview, Inc., instituted an action against Hillview, Inc., Hillview Country Club Corporation (hereinafter Hillview Corp.) and several individuals who serve or have served as directors or officers of both corporations. The plaintiffs seek both damages and equitable relief under the three counts of the complaint. In the first count the plaintiffs request that the court order the defendants to allow their inspection of the stockholder list of Hillview, Inc. ¹ The other two counts purport to be brought derivatively by the plaintiffs, as stockholders, for the benefit of Hillview, Inc. In those counts the plaintiffs seek to recover damages in favor of Hillview, Inc., from the individual defendants for their alleged misconduct and breaches of fiduciary duty.

On the defendants' motion, a Superior Court judge entered an order granting summary judgment of dismissal of the two derivative counts of the complaint, and final judgment was entered pursuant thereto. The plaintiffs have appealed from that judgment and challenge the propriety of the entry of summary judgment and the denial of a motion, brought by them following the entry of the order for summary judgment, requesting leave to amend the complaint.

We begin with a short history of the parties to this lawsuit. From the record it appears that both corporations involved in this case were created by a group of people who wished to establish a country club in North Reading. Upon the advice of counsel, one of whom is a plaintiff in the present case, the group incorporated Hillview, Inc., as a Massachusetts business corporation on February 1, 1963, for the purpose of acquiring and holding all the physical assets of an existing country club facility in North Reading. Shortly thereafter the group established Hillview Corp. as a nonprofit corporation for the purpose of managing and maintaining a new club at that location. Since its incorporation Hillview, Inc., has held only that property which comprises the North Reading facility and has continuously leased that property to Hillview Corp.

As a condition of membership each original member of the country club was required to purchase one share of common stock of Hillview, Inc., and to pay annual dues to Hillview Corp. Ownership of one share of stock and payment of annual dues entitled each member to one vote in matters affecting the respective corporations. The only restriction on the sale of Hillview Inc., stock was the requirement that the holder offer the stock to the corporation prior to its sale elsewhere. The stock has never paid a dividend, and no assessment has ever been made on the shareholders. However, Hillview Corp. has made assessments on its dues paying members for the improvement of and additions to the physical assets of the country club.

Throughout their existence the two corporations have kept the same business address in North Reading. Both corporations maintain separate financial records, but at the request of the members the corporations have occasionally issued combined financial reports detailing the condition of the country club as a whole. Although the officers and directors of both corporations are elected by separate ballots, these positions in both corporations have always been held simultaneously by the same persons. The meetings of the directors and stockholder-members of the two corporations usually have been conducted jointly.

Since its establishment the country club has accepted several new members. Many (but not all) of these new members have purchased a share of common stock in Hillview, Inc. Other individuals, most of whom are part time residents of Massachusetts, have become members of the club while purchasing only half a share of Hillview, Inc., stock. Still other individuals have been allowed to become "associate members" of the club by paying dues to Hillview Corp. without the requirement of an immediate purchase of any interest in Hillview, Inc. At the same time some of the original members have discontinued their associations with the club. Although the discontinuing members have ceased to pay dues to Hillview Corp. and no longer participate in the activities of the club, most of them still hold their single shares of stock in Hillview, Inc.

Over the past few years some of the nonmember shareholders, represented by the plaintiffs in this case, have disagreed with certain managerial decisions made by the officers and directors of the two corporations. These disagreements have culminated in the institution of the present suit, in which the plaintiffs challenge certain transactions which they claim have unduly benefited Hillview Corp. to the detriment of their respective investments in Hillview, Inc. The challenged transactions include the remortgaging of the assets of Hillview, Inc., the transfer of assets and readjustment of certain obligations between Hillview, Inc., and Hillview Corp., and a tender offer made by Hillview, Inc., for the purpose of reacquiring shares held by nonmember shareholders.

The judge based his order for summary judgment on two rulings: (1) that the derivative counts of the complaint were defective because the plaintiffs had not complied with Mass.R.Civ.P. 23.1, 365 Mass. 768 (1974), in that they had failed to allege with particularity in their complaint either those efforts which had been made to persuade a majority of shareholders to seek redress of corporate rights, or, in the alternative, those conditions which would have excused their failure to request such action; ² and (2) that the derivative counts of the complaint were independently barred for the reason that subsequent to the commencement of the action a majority of the shareholders of Hillview, Inc., undominated, uncontrolled and acting reasonably and in good faith, had voted to dismiss the action.

The judge's entry of summary judgment against the plaintiffs was correct on the basis of either of those rulings. The plaintiffs' complaint, as filed, did not allege that demand had been made upon the shareholders of Hillview, Inc., or that such a demand should be excused due to the futility thereof. ³ As there was no triable issue of fact before the judge with regard to the plaintiffs' failure to comply with that condition precedent required under Mass.R.Civ.P. 23.1, supra, the judge was correct in dismissing the derivative counts of the complaint. See Dunphy v. Travellers Newspaper Assn., 146 Mass. 495, 497, 16 N.E. 426 (1888); Bartlett v. New York, N.H. & H. R.R., 226 Mass. 467, 472-473, 115 N.E. 976 (1917); Datz v. Keller, 347 Mass. 766, 196 N.E.2d 922 (1964).

Likewise, the judge's finding and ruling that a majority of the shareholders of Hillview, Inc., had voted to dismiss the action was a sufficient basis for dismissal of the derivative action, so long as that vote was found to be a reasonable and good faith action by the shareholders. S. Solomont & Sons Trust, Inc. v. New England Theatres Operating Corp., 326 Mass. 99, 114-115, 93 N.E.2d 241 (1950). Palley v. Baird, 356 Mass. 737, 254 N.E.2d 894 (1970). The judge found that the vote count most favorable to the plaintiffs was 124 shareholders in favor of dismissing the action and 64 shareholders opposed. ⁴ The majority of shareholders are presumed to have acted in good faith and with a consciousness of duty toward the corporation and all its shareholders. S. Solomont & Sons Trust, Inc. v. New England Theatres Operating Corp., supra, 326 Mass. at 113, 93 N.E.2d 241. As the affidavits submitted by the defendants prior to the entry of summary judgment raised no genuine issue of fact which would have indicated to the judge that this seemingly independent majority of shareholders had acted other than reasonably and in good faith, the judge was justified in relying on the dismissal vote as an independent basis for summary judgment. Contrast Braunstein v. Devine, 337 Mass. 408, 414, 149 N.E.2d 628 (1958).

After the entry of the order for summary judgment the plaintiffs sought to revive the action by way of a motion for leave to amend the complaint. By that motion the plaintiffs sought to allege that their failure to make demand on the shareholders should be excused as a futile gesture because the majority of the Hillview, Inc., shareholders were also members of Hillview Corp., and that, as Hillview Corp. had benefited from the defendants' alleged wrongdoing, the majority of the shareholders could...