Laskey v. L. & L. Manchester Drive-In, Inc.

• Decision Date: 19 January 1966
• Docket Number: INC,DRIVE-I
• Citation: 216 A.2d 310
• Court: Maine Supreme Court
• Parties: Lawrence G. LASKEY and Maxwell A. Finn v. L. & L. MANCHESTERLawrence G. LASKEY and Maxwell A. Finn v. L. & L. BREWER

Page 310

216 A.2d 310

Lawrence G. LASKEY and Maxwell A. Finn v. L. & L. MANCHESTER DRIVE-IN, INC.

Lawrence G. LASKEY and Maxwell A. Finn v. L. & L. BREWER DRIVE-IN, INC.

Supreme Judicial Court of Maine.

Jan. 19, 1966.

Brann & Isaacson, by Irving Isaacson, Lewiston, for plaintiffs.

Marshall, Raymond & Beliveau, by Laurier T. Raymond, Jr., Lewiston, for defendants.

Before WILLIAMSON, C. J., and TAPLEY, MARDEN, RUDMAN and DUFRESNE, JJ.

MARDEN, Justice.

On appeal from decree of a single Justice ordering dissolution and appointment of a Receiver for each of the defendant corporations. The petitions and issues being and outstanding capital stock of the corporation consists of 50 shares of were treated then and now as one case.

Here is involved the application of 13 M.R.S.A. § 542 which provides:

'1. Judgment of dissolution. The Superior Court may, if equity so requires, enter judgment dissolving a corporation:

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'B. Whenever it is made to appear in a civil action brought by any stockholder of a corporation organized under the general laws and having no more than 10 stockholders that, notwithstanding the fact that the corporation is solvent or earning profits in the conduct of its business,

'(1) The voting stock is evenly divided into 2 independent ownerships, interests or factions, and the number of directors is even and equally divided respecting the management of the corporation with 1/2 of the stock favoring the course advocated by 1/2 of the directors and the other 1/2 of the stock favoring the course of the other 1/2 of the directors, or

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'(3) The corporation is otherwise deadlocked in its management.'

It was stipulated at pre-trial conference that the ownership of the stock entitled to be voted is equally divided between the plaintiffs and one Loew; ¹ that each corporation has fewer than 10 stockholders and that each corporation is solvent and earning profits. That the corporation was organized under the general laws is not questioned.

It was stipulated that '(t)he sole issue in dispute to be determined after hearing in each case 'are the Directors equally divided with respect to the management of the corporation?"

In joinder of the issue the defendant denies the existence of a deadlock in the corporate management within the meaning of the statute and contends that, if such deadlock be found, it has been accomplished by a split of votes created by plaintiff for the sole purpose of basing their complaint thereon, and that such split of votes does not represent an equal division respecting the management of the corporation within the meaning of the statute.

The evidence submitted consisted of the stenographically recorded minutes of a Special Meeting in lieu of the Annual Meeting of Stockholders of the defendant corporation, at which all of the stockholders were present in person and voting, and similarly recorded minutes of a Special Meeting of the Board of Directors of the defendant corporation, at which meeting all of the Directors were present in person and voting.

Upon this evidence the reference decision was founded and subjected to appeal.

The Points of Appeal are:

'1. The Court erred in ruling that upon the evidence presented by the Plaintiffs, equity requires that the Defendant corporations should be dissolved.

'2. The Court erred in ruling that the Plaintiffs satisfied their burden as to (a) the jurisdiction facts required by 13 M.R.S., Section 542, and (b) the necessity of equitable relief.

'3. The evidence is insufficient to sustain the findings of the Court.'

The statute under consideration was designed to give relief from situations created by dissension and deadlock peculiar to closely held corporations ² and, briefly paraphrased, it permits the court 'if equity so requires' to dissolve a corporation whenever the directorate is equally divided respecting the management of the corporation and the voting stock is evenly divided into two factions respectively supporting the split directorate or the corporations in otherwise deadlocked in its management. It is a case of first impression in Maine. While other States have statutes with similar purpose, and which are discussed in the articles cited in footnote 2, the decisions in those States are of limited aid to us because of provisions peculiar to those jurisdictions. ³ While these statutes are alike in principle as to the jurisdictional facts by which access to the Court is gained, commonly there are provisions requiring the exercise of judicial discretion and therein the real controversies arise. Benefit to stockholders, Seamerlin; Radom; irreparable injury to corporation, Handlan; Jackson; good and sufficient reason, Krall; acts of those in control oppressive, Gidwitz, are examples. In our statute the phrase 'if equity so requires' is a distinguishing feature

Upon this appeal from the finding of a single Justice, findings of fact by the Justice below will be conclusive if supported by credible evidence, Flagg v. Davis et al., 147 Me. 71, 74, 83 A.2d 319, and the burden is upon the Appellant to satisfy this court that the rulings and findings of the Justice below were clearly wrong, Dutch v. Scribner, 151 Me. 354, 118 A.2d 887.

The Appellant urges that assuming, without admitting, that the records of the meetings, the stipulations and the pleadings establish facts which, under the statute, give the court jurisdiction to entertain the complaint, such evidence alone is insufficient to establish entitlement to remedial dissolution.

By the terms of the pre-trial order the only issue of fact, is whether the Directors are equally divided with respect to the management of the corporation. It is implicit that there is a mixed question of fact and law on the 'equities.' The record supports amply a conclusion that this jurisdictional fact is present. Classifying the division of the Directors for convenience as faction A and faction B, the plaintiff faction A offered a series of propositions with relation to corporate business for the consideration of the Board of Directors, on none of which could action be taken by reason of equal division of the Board. These matters were:

(1) Designation of a co-signer for the deposit and disbursement of corporate funds.

(2) Employment of an accountant.

(3) Termination of an existing relationship with a stated theatre management company.

(4) The employment of another company or individual to handle theatre operations.

(5) Change in the source of theatre concession supplies, and

(6) The establishment of salaries of officers and employees for the current year.

The record implies that by virtue of management decisions, before dissension among the Directors arose, contracts had been made with a theatre management company in which faction B had, and continues to have, a financial interest and from which financial benefit to faction B continues to inure. The record does not disclose upon what contractual basis the relationship between the defendant corporation and the management company stands, but in any event, the deadlock prevents a review or renegotiation of this relationship. By this deadlock the benefitted faction B remains in a position to perpetuate its benefits and the opposing faction is powerless to be effectively heard on the matter.

The corporate arrangement for the purchase of theatre concession supplies would appear to be similarly frozen and as long as the vendor is content to accept the authority of faction B in control of the status quo, the opposing faction is similiarly impotent. In both instances the investment of faction A has no audible voice.

It must be conceded that one of the primary functions of management is to fix the compensation of officers and employees (By-Laws quoted in footnote 1), which of necessity must be reviewed periodically, in the light of changing business conditions and economic atmosphere, and a stalemate in this area is persuasive evidence that the corporate balance wheel is on dead center, that there is no movement of the corporate machinery in this respect and the result is, as expressed by the single Justice, corporate paralysis.

A study of the record discloses such acrimony between the factions that there is loss of communication and no signs of reconcilability.

Appellant also urges that the 'deadlock,' if found, arises only by reason of propositions advanced by faction A with an ulterior purpose to thereby manufacture a stalemate and, if not so promoted, the resulting tie vote is on trivia such as inability to decide upon the color of the rug in the Board room. Obliquely we reply that the issue is the establishment of equities, in the determination of which the nature of proposals advanced is a consideration. Whether the proposals be deliberate and only to demonstrate a deadlock or have to do with matters inconsequential to vital corporate administration is for the court to determine, and unless clearly wrong, the findings of the single Justice stand.

Appellant urges, the single Justice agreed and we agree, that statutory dissolution is authorized only when a) facts which the statute had prescribed are established to enable the court to entertain the complaint, and b) 'something more' to establish that equitable considerations justify dissolution. The single Justice and we do not agree with appellants that the proof establishing socalled jurisdictional facts may not also, at times, supply proof of the necessary 'something more',--that equity requires a grant of the statutory remedy.

What is the test by which the presence of a requiring equity is determined? It is not possible to express a neat definition. The characteristic flexibility of equity to meet the demands to which it by its nature, is exposed has seen the early conception of equity as being only the application of the 'King's conscience' markedly changed over the intervening years. ⁴

In recognition of the development of equity and its meaning it was said...