Smith v. Atlantic Properties, Inc.

422 N.E.2d 798 (1981)

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Nature of the Case

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Facts

Dr. Wolfson purchased land for $350,000 with $50,000 down and a mortgage note of $300,000 due in thirty-three months. The Dr. then offered a quarter interest in the land to three different parties each paying $12,500 of the initial payment. A corporation, Atlantic, was organized and each shareholder got 25 shares of stock. A provision in the bylaws was included that required an 80% approval of all shareholders for all corporate decisions. This gave each of the four shareholders a veto in corporate decisions. Things went well, and eventually, Atlantic purchased the land and sold some of it for $220,000 but retained about 28 acres with brick structures that were badly in need of repair. Eventually, however, ill will broke out amongst the shareholders with three against one, Dr. Wolfson. Dr. Wolfson refused to vote for dividend distributions despite the specter of IRS assessment of a penalty tax. The penalty tax was imposed and imposed against in four different years. The three shareholders initiated a proceeding in court for the payment of dividends, the removal of Dr. Wolfson as director, and an order that Atlantic be reimbursed by Dr. Wolfson for the penalty taxes assessed against it. The trial judge ruled that Dr. Wolfson's refusal to vote for dividends was prompted not by the supposed need for repairs to the property but by his dislike of the other shareholders and his desire to avoid additional tax payments. The judge ruled that Wolfson was liable to Atlantic for taxes and interest and attorney fees of more than $55,000. The trial judge then ordered the directors of Atlantic to declare a reasonable dividend at the earliest practicable date and reasonable dividends thereafter annually consistent with good business practice. The trial judge retained jurisdiction for five years to ensure compliance. Wolfson and Atlantic filed a motion for a new trial, and that was denied, and they appealed. The plaintiffs then requested attorney fees and that was denied. Ps then appealed.