Farahpour v. Dcx, Inc

635 A.2d 894 (1994)

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Rule Of Law

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Nature Of The Case

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Facts

D is a Delaware corporation doing business in the District of Columbia under the trade name 'Diamond Cab.' P is a cab driver associated with the corporation periodically from 1972 to 1989. In 1928, D amended its articles of incorporation and became a nonprofit, nonstock corporation, with a purpose to operate for the mutual benefit of its members. Members of the nonprofit, nonstock corporation were the members of the corporation in good standing at the time of the amendment, and such other taxicab owners and operators as shall be admitted under payment of the initiation fee and dues provided by the bylaws. P was a nonvoting member of the nonprofit corporation. In 1987, D's board of directors amended its articles of incorporation three times, all by resolutions. D became a for-profit, stock corporation named DCX, Inc., with its stock ownership limited to full members, each of whom received dividends in 1989, 1990, and 1991, paid from the corporation's checking account. Two classes of nonvoting members were eliminated without prior notice. P sued D to challenge the conversion of D. The District of Columbia Court of Appeals certified two questions of law to the Delaware Supreme Court regarding whether changes to the corporate structure, the elimination of nonvoting members’ rights, and lack of notice to the nonvoting members were permissible. The questions: 1. Whether, under Delaware law, a corporation, incorporated in the State of Delaware, may make fundamental changes in its structure and purposes, through amendment of its articles of incorporation, pursuant to resolutions passed by the corporation's board of directors with the result that: (a) a for-profit, stock corporation is converted into a nonprofit, nonstock, mutual benefit corporation; (b) the nonprofit, nonstock, mutual benefit corporation is subsequently re-converted into a for-profit, stock corporation; (c) the newly-authorized stock of the reconverted corporation is distributed to the voting members of the corporation only; and (d) two classes of nonvoting members are eliminated, along with their rights to receive a distribution of the corporation's assets in the event of a dissolution of the corporation? 2. Whether the changes in (a) - (d) above may be accomplished without notification to the corporation's nonvoting members, without a dissolution of the nonprofit corporation, without a merger or consolidation, and without the corporation providing anything of value to the members whose rights have been extinguished?

Issues

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Holding & Decision

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Legal Analysis

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