Meiselman v. Meiselman

• Decision Date: 21 September 1982
• Docket Number: No. 8126SC692,8126SC692
• Citation: Meiselman v. Meiselman, 295 S.E.2d 249, 58 N.C.App. 758 (N.C. App. 1982)
• 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.
• Court: North Carolina Court of Appeals

Page 249

295 S.E.2d 249

58 N.C.App. 758

Michael H. MEISELMAN v.Ira S. MEISELMAN, Lawrence A. Poston, Paul Edward LloydEastern 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. 8126SC692.

Court of Appeals of North Carolina.

Sept. 21, 1982.

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

Blakeney, Alexander & Machen by J. W. Alexander, Jr., Charlotte, for individualdefendant-appellees.

Farris, Mallard & Underwood, P. A. by Ray S. Farris, Charlotte, for corporate defendant-appellees.

BECTON, Judge.

With remarkable clarity, and in exceptionally well-researched and well-written briefs, the parties have painstakingly set forth their contentions.¹Indeed, we have partially adopted, as a model, the outlines used by the parties in structuring their arguments.Having reviewed the record and the applicable law, we reverse the trial court's holdings that Michael is not entitled to relief under G.S. 55-125.1 and that there was no actionable breach of fiduciary duty by Ira.

I

The Development and Distribution of the H. B. Meiselman Enterprise.

Michael and Ira are the only surviving children of H. B. Meiselman, who emigrated to this country in 1913.By 1951, Mr. Meiselman had accumulated substantial wealth in movie theaters and real estate, and, in that year, he formed several interrelated corporations into which he transferred most of his property.In 1951, Mr. Meiselman also initiated a series of inter vivos gifts of corporate stock to Michael and Ira, a course of action which eventually led to ownership by his sons of virtually all of his holdings.For the most part, Michael and Ira were treated equally in the gifts and bequests from their parents.²In September 1968, however, defendantEastern Federal Corporation(Eastern) was formed by Mr. Meiselman and several existing corporations were merged into it, making Eastern, in effect, the parent corporation.Mr. Meiselman vested control of Eastern in Ira in 1968, and Ira has been the controlling shareholder since that time.

On 13 March 1971, Mr. Meiselman made his final inter vivos gift of stock to his sons when he transferred 83,072 shares of stock in Eastern to Ira, and 1,966 shares of stock in that company to Michael.As stated by Michael in his brief, the result of these transactions is a complicated pattern of ownership with the defendant corporations owning stock in each other.The percentage of ownership, including intercorporate ownership, is as follows:

3
                Ira and family          -  39.07%
                Michael                 -  29.82%
                Defendant corporations  -  31.11% 3
                

Under Mr. Meiselman's leadership the corporations never paid dividends.They were operated, insofar as possible, on a cash basis with a minimum of borrowed funds.Mr. Meiselman followed a policy of "plowing back" earnings for expansion of his enterprise.By 1968, when Ira took control of operations, the book value of all the defendant corporations was $3,412,403.After ten years under Ira's management, this value has increased to $11,168,778.⁴

The tax value of Eastern's fixed assets is approximately 135% of the book value.Michael argues that if the total book value of all corporations (not just Eastern) were increased by 135%, the assessed tax value of the enterprise as of 31 December 1978 would have been over fifteen million and that the fair market value of the enterprise would have been even greater.

II

(1) Relief under G.S. 55-125.1 as an alternative to involuntary dissolution under G.S. 55-125(a)(4).⁵

Reduced to its basics, Michael's claim is that he inherited millions which he cannot get or control.Specifically, Michael argues that an order requiring the defendants to "buy him out at the appraised fair value of his interest" is necessary for his protection because (i) an irreconcilable conflict, causing intense hostility and bitterness, exists between Michael and Ira; (ii) Ira has control of the family corporations and has totally excluded Michael from any participation in the business, and has, moreover, fired him; and (iii) Michael is unable to use or control his inheritance, which ranges from three to seven million dollars, because of Ira's actions.

G.S. 55-125(a)(4) authorizes the involuntary dissolution of a corporation when "reasonably necessary for the protection of the rights or interests of the complaining shareholder."Involuntary dissolution, however, is not the exclusive remedy in North Carolina, because under G.S. 55-125.1the court has broad discretion to grant any kind of relief it deems appropriate as an alternative to dissolving a corporation.

The breadth of the relevant provisions of our Business Corporation Act, G.S. 55-125, et seq., can best be understood by an historical analysis which demonstrates that our courts should not hesitate to dissolve corporations or grant other relief to minority shareholders when relief is warranted.Realizing then that the statutory provisions authorize relief for minority shareholders, our trial courts must, in the exercise of sound discretion, determine the relief, if any, a minority shareholder is entitled to receive.While it is true that history teaches that we are not to be blinded by narrow common law precepts and that our legislature did not view corporate existence as a "sacred cow," Latty, "The Close Corporation and the New North Carolina Business Corporation Act,"34 N.C.L.Rev. 432, 448(1956), it is equally true that our legislature did not intend for the cow to be butchered.SeeComment: Deadlock and Dissolution in the Close Corporation: Has the Sacred Cow Been Butchered?58 Neb.L.Rev. 791(1979).

(a) Historical Background

Although the courts at common law did not have the power to dissolve corporations in suits by shareholders, that rule was modified for the protection of shareholders in a few cases.See, for example, Miner v. Belle Isle Ice Co., 93 Mich. 97, 53 N.W. 218(1892).The dissolution of corporations was most often seen in cases involving closely held corporations in which "there [were] only a few stockholders, so that the corporation for practical purposes, as between those interested, [was] much like a partnership."Flemming v. Heffner and Flemming, 263 Mich. 561, 568, 248 N.W. 900, 902(1933).See alsoState ex rel. Conlan v. Oudin Etc. Mfg. Co., 48 Wash. 196, 198, 93 P. 219, 220(1908)andIsraels, The Sacred Cow of Corporate Existence: Problems of Deadlock and Dissolution, 19 U.Chi.L.Rev. 778(1952).Interestingly, not all courts accepted the close corporation-partnership analogy.In Baker v. Commercial Body Builders, 264 Or. 614, 630, 507 P.2d 387, 394(1973), the Oregon Supreme Court aptly stated the contra view:

We also reject the concept that a "closed corporation" is like a partnership to the extent that a minority stockholder should have the same right as a partner to demand a dissolution of a business upon substantially the same showing as may be sufficient for the dissolution of a partnership.After all, the remedy of a forced dissolution of a corporation may equally be "oppressive" to the majority stockholders.

This contra view expressed in Baker did not reverse the trend.Courts, generally speaking, have not viewed corporate entities as "untouchables" or "sacred cows."State legislatures have followed suit, giving more protection to minority shareholders.Now every state has a statute authorizing its courts to order the involuntary dissolution of a corporation upon the petition of the complaining shareholder when the shareholders are deadlocked, when the majority shareholders are oppressing the minority shareholders, or when liquidation is deemed necessary for the protection of the rights and interests of the minority shareholders.⁶

In the absence of a deadlock, involuntary dissolution is most often authorized by statutes or ordered by courts when there is a showing of mismanagement or wrongdoing ⁷ or when "fairness" requires court relief.⁸Moreover, "oppressiveness," as a statutory ground for dissolution, does not mean "illegal" or "fraudulent" conduct.Courts have uniformly equated oppressive conduct with impropriety and wrongful conduct by majority shareholders.For example, seeAnnot.56 A.L.R.3d 358, 362(1974) in which it is said:

"[O]ppression" ... [is] defined as a visible departure from the standards of fair dealing and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely, and also as a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members.It has been observed that as interpreted by some decisions, this ground has some latitude beyond the common-law situations and may include acts which thwart the expectations of a shareholder that the corporation will be run honestly and ratably for the benefit of all shareholders, and that the shareholder will be allowed to participate in management.

See also, Comment, Oppression as a Statutory Ground for Corporate Dissolution, 1965 Duke Law Journal 128.

(b) The North Carolina Business Corporations Act and Its Legislative History.

G.S. 55-125.1 was copied from a virtually identical provision in the South Carolina Business Corporation Act.⁹With regard to the South Carolina Act, Professor Ernest L. Folk, III, the drafter and official reporter of that Act, stated: "The trend is towards increasingly liberal grounds for dissolution by court order, remembering always that the court does not dissolve corporations automatically, but only if, broadly speaking, it believes dissolution to be equitable."S. C. Business CorporationAct, Annot.Ed.p. 181(1964).Folk suggested that in addition to involuntary dissolution provisions, the legislature should offer the courts an...