Schwartz v. Marien
| Decision Date | 17 January 1974 |
| Citation | 351 N.Y.S.2d 216,43 A.D.2d 307 |
| Parties | Margaret A. SCHWARTZ, Executrix under the Last Will and Testament of Girard A. Dietrich, Appellant, v. Robert J. MARIEN et al., Respondents, Edward L. Kasprzak et al., Defendants. |
| Court | New York Supreme Court — Appellate Division |
Offermann, Fallon, Mahoney & Adner, Buffalo, for appellant; Francis J. Offermann, Jr., Buffalo, of counsel.
Lipsitz, Green, Fahringer, Roll, Schuller & James, Buffalo, for respondents; Evan E. James, Carmin R. Putrino and Lawrence A. Schulz, Buffalo, of counsel.
Before DEL VECCHIO, J.P., and MARSH, WITMER, SIMONS and MOULE, JJ.
Absent specific provision in the Certificate of Incorporation, shares of treasury stock are not subject to pre-emptive rights of purchase (Business Corporation Law, § 622(e)(4)). Nevertheless the directors of the corporation owe a fiduciary duty both to the corporation and to its shareholders, and the sale of treasury stock to employees and directors and the refusal to sell similar shares to appellant must accord with the established legal standards of honesty and fair dealing in the management of the corporation. If the purpose of the Board of Directors was to diminish plaintiff's proportionate ownership without benefiting the corporation, then appellant is entitled to relief (Hammer v. Werner, 239 App.Div. 38, 265 N.Y.S. 172).
It appears from the moving papers that appellant is not and never has been active in the corporation. She acquired by inheritance the 50 shares representing her ownership. They represent 33 1/3% Of the authorized stock and 50% Of the issued stock. She admits that she has been negotiating with the corporation for its purchase of her holdings and she concedes for purposes of this motion that the price paid by the employees and directors was a fair one.
The respondents justify their conduct by affidavits alleging that the sales were necessary to insure the continued employment of key employees and that the corporate policy was to limit further sales of stock to other than active employees of the corporation. Respondents allege that the best interests of the corporation dictated their refusal to sell appellant treasury shares to restore her 50% Stock position at a time when the corporation was trying to purchase her present holdings.
Obviously the parties are engaged in a contest in which the prize is the change in the price of appellant's shares which may result by reason of her improved or weakened bargaining position depending upon her relative strength as a stockholder of the corporation.
That is the practical consideration behind this action, but be that as it may, if the directors acted properly in the discharge of their fiduciary duties by issuing the treasury stock, their actions are unassailable. Evaluation of their conduct requires development of the facts upon a trial.
The order denying summary judgment should be affirmed.
Order affirmed without costs. Plaintiff's motion to strike matter appearing in defendants' brief granted.
MOULE, J., dissents and votes to reverse the order and grant plaintiff's motion in the following Opinion.
We have for consideration what remedy, if any, is available to plaintiff, a shareholder of a corporation, when three directors have voted to sell shares of treasury stock to themselves and to two employees in order to divest her of a fifty per cent interest in the corporation's outstanding stock and then, at a subsequent shareholders' meeting, voted their newly-acquired shares to remove her from the board.
Plaintiff, as executrix under her father's will, is the owner of fifty shares of stock in Superior Engraving Co., Inc. (Superior) which has been in the engraving business in Buffalo for more than forty years. Her father, Girard A. Dietrich, was one of the company's founders and until July 25, 1968 plaintiff was a member of its board of directors. Defendants Robert H. Marien, Edward G. Marien and August L. Marien are currently members of Superior's board of directors. They are brothers and on May 6, 1968 each owned eight shares of Superior stock as beneficiaries under the will of their father, August L. Marien, Sr. The elder Marien, along with Dietrich and a third man, A. C. Smith, were the company's original stockholders.
When Dietrich, Marien, Sr., and Smith incorporated Superior, fifty shares of its stock were issued to each of them. Smith died in 1959 and his fifty shares were repurchased by the corporation. Marien died in 1961 and his fifty shares were divided among his three sons, defendants herein, and his wife, Clara. Following Marien's death, Dietrich continued to run the business. He was president of the corporation. The board of directors consisted of himself, his daughter, Margaret Schwartz, the plaintiff herein, and two of the defendants, August L. Marien and Robert H. Marien. Dietrich died on March 15, 1968 and plaintiff, as his executrix, acquired her interest in the fifty shares of stock to which he had originally subscribed. The corporation was thus left without a president and with a vacancy on its board of directors.
On May 6, 1968 a special meeting of Superior's remaining three directors was called for the purpose of electing a new president and for filling the vacancy on the board created by Dietrich's death. The notice of the meeting, signed by August Marien as vice president of the corporation and by Edward Marien as secretary, stated that a further purpose would be 'to consider and take action with respect to authorization for the sale and/or purchase of the common capital stock presently held by the heirs of the estate of Girard Dietrich And treasury stock of the corporation.' (Emphasis added.)
At this time plaintiff's fifty shares represented one-half of the outstanding voting stock of the company. The Marien brothers, who each owned eight shares, and their mother, who owned twenty-six, controlled the other fifty outstanding shares, and fifty shares were held by the corporation as treasury stock after being repurchased from A. C. Smith in 1961.
The first order of business at the May 6 meeting, which plaintiff attended, was to fill the vacancy on the corporation's board of directors. Edward Marien, who had been secretary of the company but not a board member, was elected to the board on the vote of his two brothers. Plaintiff abstained from voting. Next, Robert Marien was elected president. Again plaintiff abstained from voting. A motion was then passed authorizing Robert Marien, as president, to negotiate on behalf of the corporation for the repurchase of the fifty shares of stock held by plaintiff as executrix of her father's estate. Then, Robert Marien announced that the corporation had received offers from fove persons, including himself, his two brothers and two of the corporation's employees, Edward Kasprzak and Louis Zimmerman, each to purchase one share of the corporation's treasury stock at a price of $1,200 per share. Plaintiff had no prior notice that such offers would be made and asked questions concerning them. She was told that the stock on which the offers had been received was part of the block of fifty shares repurchased from A. C. Smith and that no prior effort had been made to dispose of it because no other offer had ever been received. A resolution was then adopted, on the vote of the three Marien brothers, accepting the offers and approving the sale. No business reason was advanced for selling the stock and the meeting was adjourned. The result of the sale was to increase the number of outstanding voting shares of the corporation's stock from 100 to 105 and thereby to reduce plaintiff's proportionate interest from 50% To 47.6%.
At the plaintiff's request, another special meeting of Superior's board of directors was convened on May 20, 1968. At this meeting she made an offer to purchase an equal number of shares of the corporation's treasury stock as was purchased by the others on May 6. Her offer, however, was refused and on July 25, 1968, at a meeting of Superior stockholders, the Mariens, Kasprzak and Zimmerman voted their newly-acquired shares to remove her from the board of directors.
Plaintiff commenced the instant action just prior to the July 25, 1968 stockholders' meeting. She originally sought a preliminary injunction to bar the meeting and demanded that the three Marien brothers, Kasprzak and Zimmerman, all of whom were named as defendants, be required to tender the five shares of treasury stock they purchased back to the corporation. Her request for an injunction was denied, however, and subsequently her action against Kasprzak and Zimmerman was dismissed on the ground that her complaint failed to allege that they conspired with the Mariens to defraud her of her interest in the corporation. These events rendered her original demand for relief unattainable and she now asks that a judgment be entered, pursuant to CPLR 3017, voiding the July 25 stockholders' meeting and directing defendants August, Robert and Edward Marien to restore her to her former position as holder of a fifty per cent voting interest in the corporation by selling her five shares of the company's remaining treasury stock at a price equal to that which they paid for the same stock on May 6, 1968.
Both parties moved at Special Term for summary judgment but their motions were denied on the ground that the pleadings and papers before the court presented material issues of fact requiring a plenary trial. Plaintiff has appealed from that determination. Plaintiff also made...
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...Appellant, v. Robert H. MARIEN et al., Respondents. Court of Appeals of New York. July 10, 1974. Motion to dismiss the appeal, 43 A.D.2d 307, 351 N.Y.S.2d 216, herein or, in the alternative, to resettle the record ...