Tillis v. United Parts, Inc., 80-844

• Decision Date: 25 March 1981
• Docket Number: No. 80-844,80-844
• Citation: 395 So.2d 618
• Parties: John E. TILLIS, Sr. et al., Appellants, v. UNITED PARTS, INC. et al., Appellees.
• Court: Florida District Court of Appeals

Page 618

395 So.2d 618

John E. TILLIS, Sr. et al., Appellants, v. UNITED PARTS, INC. et al., Appellees.

No. 80-844.

District Court of Appeal of Florida, Fifth District.

March 25, 1981.

James R. Dressler, Cocoa Beach, for appellants.

Robert T. Westman and L. L. Lovering, Cocoa, for appellees.

COWART, Judge.

Appellants, minority stockholders of a close corporation, filed a stockholder's derivative action against the majority stockholders and the corporation alleging that the majority stockholders, acting as corporate directors and officers, purchased from themselves and for the corporation shares of capital stock of the corporation at a price in excess of its market value. The complaint alleged that while the purchase was made from retained corporate earnings it so financially depleted the corporation that the corporation was required to borrow $10,000 back from the majority stockholders. The trial court dismissed the complaint as failing to state a cause of action. We reverse.

Appellees argue that section 607.017, Florida Statutes (1979), allows corporations to buy their own stock and that all corporate powers are vested in the board of directors. § 607.111, Fla.Stat. (1979). Appellees also refer to cases holding that courts are not to substitute their judgment for a director's in the exercise of a discretionary corporate function. See, e. g., Lake Region Packing Association, Inc. v. Furze, 327 So.2d 212 (Fla.1976).

Corporate directors owe a fiduciary obligation to the corporation and to the stockholders and must act in good faith and in the best interests of the corporation. Orlando Orange Groves Co. v. Hale, 107 Fla. 304, 144 So. 674 (1932); Chipola Valley Realty Co. v. Griffin, 94 Fla. 1151, 115 So. 541 (1927); Etheredge v. Barrow, 102 So.2d 660 (Fla. 2d DCA 1958). Transactions have been set aside as unfair where a director has acted both on behalf of a corporation and individually. See, e. g., Rowland v. Times Pub. Company, 160 Fla. 465, 35 So.2d 399 (1948); News-Journal Corporation v. Gore, 147 Fla. 217, 2 So.2d 741 (1941); Hackley v. Oltz, 105 So.2d 20 (Fla. 3d DCA 1958). Corporate officers, controlling the corporation through ownership of a majority of the stock, have a fiduciary relation to minority stockholders. Hanraty v. Ostertag, 470 F.2d 1096 (10th Cir. 1972); Harriman v. E. I. DuPont De Nemours & Co., 372 F.Supp. 101 (D.Del.1974); Backus v. Finkelstein, 23 F.2d 357 (D.Minn.1927).

Appellants argue that instead of using retained earnings to pay dividends to all stockholders, appellees as majority stockholders, by using the corporate earned surplus to buy part of their own stock, in effect paid themselves a dividend to the detriment of appellants as minority stockholders, citing Alliegro v. Pan American Bank of Miami, 136 So.2d 656 (Fla. 3d DCA 1962). In Alliegro a majority of the bank stock was owned by a parent corporation, Sottile, Inc. Minority stockholders filed suit alleging that the bank was making preferential dividends to the majority stockholders (the parent) by filing a consolidated tax return whereby the bank's earnings were set off against the parent's losses with the resulting tax savings to the bank being transferred to the parent. The Third District Court, in reversing the trial...