Matter Of Kemp & Beatley, Inc.

64 N.Y.2d 63, 484 N.Y.S.2d 799, 473 N.E.2d 1173 (1984)

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Nature of the Case

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Facts

Kemp & Beatley (D) designs and manufactures table linens and sundry tabletop items. The company's stock consists of 1,500 outstanding shares held by eight shareholders. Petitioner Dissin had been employed by the company for 42 years and served as vice-president and a director. In June 1979, he resigned. Over the course of his employment, he acquired stock in the company and currently owns 20 shares. Petitioner Gardstein was also a long-term employee. He was hired in 1944 and for the next 35 years was involved in various aspects of the business including material procurement, product design, and plant management. His employment was terminated by the company in December 1980. He currently owns 105 shares of the stock. Petitioners' claim that they no longer receive any disbursement of the company's earnings. They consider themselves frozen-out, whereas it had been their experience when with the company to receive a distribution of the company's earnings according to their stock holdings, in the form of either dividends or extra compensation; that distribution was no longer forthcoming. Both petitioners, who together hold 20.33% of the stock, commenced this instant proceeding in June 1981, seeking dissolution of the company, pursuant to Sec. 1104-a of the Business Corporation Law. Their petition alleged 'fraudulent and oppressive' conduct by the company's directors such as to render petitioners' stock a 'virtually worthless asset.' The referee concluded that the corporate management had by its policies effectively rendered petitioners' shares worthless, and the only way petitioners could expect any return was by dissolution. The court confirmed the referee's report. They too concluded that due to the corporation's new dividends policy, petitioners had been prevented from receiving any return on their investment. The court considered judicial dissolution of a corporation to be a serious and severe remedy. Consequently, the order of dissolution was conditioned upon the corporation's being permitted to purchase petitioners' stock. The Appellate Division affirmed, without opinion.