Katzowitz v. Sidler

249 N.E.2d 359, 24 N.Y.2d 512 (1969)

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Nature of the Case

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Facts

Katzowitz (P) is a director and stockholder of a close corporation. Sidler and Lasker (D) own the remaining securities, and all three comprise Sulburn Holding Corporation's board of directors. The corporate certificate of incorporation authorized 1000 shares of no par value stock and the incorporators established $100 per share as a price. Each director invested $500 for five shares. The three men worked together for over 25 years until Ds joined forces to oust P. In December 1961, the corporation owed each director $2500. Ds wanted to loan this sum out and substitute new stock for the debt. P disagreed. Ds did all the formalities to notice and approve the vote on the shares. Ds then met separately and approved the issuance of 75 new shares. Twenty-five shares were offered to each director. P refused, receiving his $2500 owed. D purchased their new shares, and eight months later, the principal asset of the corporation was destroyed. The directors unanimously voted to dissolve the corporation. Upon dissolution, Ds each received $18,885.52 but Katzowitz only received $3,147.59 Based upon book value of the corporation, upon dissolution, Ds received amounts six times greater than the amount given to P. P instituted a declaratory judgment action to establish his right to the proportional interest in the assets of Sulburn in liquidation less the $5,000 which Ds used to purchase their shares in December 1961. The court found the book value of the corporation's securities on the day the stock was offered at $100 to be worth $1,800. It reasoned that P waived his right to purchase the stock or object to its sale to Ds by failing to exercise his pre-emptive right and found his protest at the time of dissolution untimely. On appeal, the court held that showing a disparity between book value and offering price was insufficient without also showing fraud or overreaching. D appealed.