In re the Voluntary Dissolution of Radom & Neidorff, Inc.

Desmond, J. Badom & Neidorff, Inc., the proposed dissolution of which is before us here, is a domestic corporation which has, for many years, conducted, with great success, the business of lithographing or printing musical compositions. For some thirty years prior to February 18, 1950, Henry Neidorff, [5] now deceased, husband of respondent Anna Neidorff, and David Radom, brother-in-law of Neidorff and brother of Mrs. Neidorff, were the sole stockholders, each holding eighty shares. Henry Neidorff’s will made his wife his executrix and bequeathed her the stock, so that, ever since his death, petitioner-appellant David Radom and Anna Neidorff, brother and sister, have been the sole and equal stockholders. Although brother and sister, they were unfriendly before Neidorff’s death and their estrangement continues. On July 17, 1950, five months after Neidorff’s death, Radom brought this proceeding, praying that the corporation be dissolved under section 103 of the General Corporation Law, the applicable part of which is as follows: “ § 103. Petition in case of deadlock. “Unless otherwise provided in the certificate of incorporation, if a corporation has an even number of directors who are equally divided respecting the management of its affairs, or if the votes of its stockholders are so divided that they cannot elect a board of directors, the holders of one-half of the stock entitled to vote at an election of directors may present a verified petition for dissolution of the corporation as prescribed in this article.” That statute, like others in article 9 of the General Corporation Law, describes the situations in which dissolution may be petitioned for, but, as we shall show later, it does not mandate the granting of the relief in every such case. The petition here stated to the court that the corporation is solvent and its operations successful, but that, since Henry Neidorff’s death, his widow (respondent here) has refused to co-operate with petitioner as president, and that she refuses to sign his salary checks, leaving him without salary, although he has the sole burden of running the business. It was alleged, too, that, because of “unresolved disagreements” between petitioner and respondent, election of any directors, at a stockholders’ meeting held for that purpose in June, 1950, had proved impossible. A schedule attached to the petition showed corporate assets consisting of machinery and supplies worth about $9,500, cash about $82,000, and no indebtedness except about $17,000 owed to petitioner (plus his salary claim). Mrs. Neidorff’s answering papers alleged that, while her husband [6] was alive, the two owners had each drawn about $25,000 per year from the corporation, that, shortly after her husband’s death, petitioner had asked her to allow him alone to sign all checks, which request she refused, that he had then offered her $75,000 for her stock, and, on her rejection thereof, had threatened to have the corporation dissolved and to buy it in at a low price or, if she should be the purchaser, that he would start a competing business. She further alleged that she has not, since her husband’s death, interfered with Radom’s conduct of the business and has signed all corporate checks sent her by him except checks for his own salary which, she says, she declined to sign because of a stockholder’s derivative suit brought by her against Radom, and still pending, charging him with enriching himself at this corporation’s expense. Because of other litigation now concluded (see Matter of Radom, 305 N. Y. 679) to which Mrs. Neidorff was not a party, but which had to do with a contest as to the ownership of the Radom stock, respondent’s answering papers in this dissolution proceeding were not filed until three years after the petition was entered. From the answering papers it appears, without dispute, that for those three years, the corporation’s profits before taxes had totaled about $242,000, or an annual average of about $71,000, on a gross annual business of about $250,000, and that the corporation had, in 1953, about $300,000 on deposit in banks. There are many other accusations and counteraccusations in these wordy papers, but the only material facts are undisputed: first, that these two equal stockholders dislike and distrust each other; second, that, despite the feuding and backbiting, there is no stalemate or impasse as to corporate policies; third, that the corporation is not sick but flourishing; fourth, that dissolution is not necessary for the corporation or for either stockholder; and, fifth, that petitioner, though he is in an uncomfortable and disagreeable situation for which he may or may not be at fault, has no grievance cognizable by a court except as to the nonpayment of his salary, hardly a ground for dissolving the corporation. Special Term held that these papers showed a basic and irreconcilable conflict between the two stockholders requiring dissolution, for the protection of both of them, if the petition’s [7] allegations should be proven. An order for a reference was, accordingly, made, but respondent appealed therefrom, and no hearings were held by the Referee. The Appellate Division reversed the order and dismissed the petition, pointing out, among other things, that not only have the corporation’s activities not been paralyzed but that its profits have increased and its assets trebled during the pendency of this proceeding, that the failure of petitioner to receive his salary did not frustrate the corporate business and was remediable by means other than dissolution. The dismissal of the proceeding was “ without prejudice, however, to the bringing of another proceeding should deadlock in fact arise in the selection of a board of directors, at a meeting of stockholders to be duly called or if other deadlock should occur threatening impairment or in fact impairing the economic operations of the corporation.” (282 App. Div. 854.) Petitioner then appealed to this court. It is worthy of passing mention, at least, that respondent has, in her papers, formally offered, and repeated the offer on the argument of the appeal before us, “ to have the third director named by the American Arbitration Association, any Bar Association or any recognized and respected public body ”. Clearly, the dismissal of this petition was within the discretion of the Appellate Division (General Corporation Law, § 106; Matter of Cantelmo [Brewer], 275 App. Div. 231; Matter of Myer v. Myer, 272, App. Div. 888, motion for leave to appeal denied 297 N. Y. 1038). There is no absolute right to dissolution under such circumstances. Even when majority stockholders file a petition because of internal corporate conflicts, the order is granted only when the competing interests “ are so discordant as to prevent efficient management” and the “ object of its corporate existence cannot be attained ” (Hitch v. Hawley, 132 N. Y. 212, 221; see Matter of Niagara Ins. Co., 1 Paige Ch. 258). The prime inquiry is, always, as to necessity for dissolution, that is, whether judicially-imposed death “ will be beneficial to the stockholders or members and not injurious to the public ” (General Corporation Law, § 117; Hitch v. Hawley, supra; 1944 Report of N. Y. Law Revision Commission, p. 354, also cases from other jurisdictions cited in that report in the footnotes to p. 363; Matter of Pyrolusite [8] Manganese Co., 29 Hun 429; Matter of George W. Anderson, Inc., 104 N. Y. S. 2d 184, affd. 279 App. Div. 594). Taking everything in the petition as true, this was not such a case, and so there was no need for a reference, or for the talcing of proof, under sections 106 and 113 of the General Corporation Law. The order should be affirmed, with costs.