Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. VC046769, Raul A. Sahagun, Judge.
Schanz Acromite and William L. Schanz for Plaintiff and Appellant.
Law Offices of Carl F. Agren and Carl F. Agren for Defendants and Respondents.
WOODS, J.
INTRODUCTION
This appeal is from the trial court’s denial of an application for preliminary injunction sought by Harbor Furniture Manufacturing, Inc., a closely held family corporation, being operated under a subchapter “S” election for income tax purposes, in the face of a threat to have the corporation’s tax status changed to a “C” corporation by two family members constituting the majority shareholders but who occupy minority voting status in the corporation. Plaintiff and appellant, Harbor Furniture Manufacturing, Inc. will be referred to herein as “Harbor.” Defendants and respondents, Candi Tuttleton and Ann Stuparich are the two family members constituting the majority shareholders who, combined, own a slight majority of the shares of Harbor and will be referred to hereafter as “majority shareholders” unless context dictates otherwise. Occasionally the family members will be referred to herein by their first names, not out of disrespect, but for convenience in describing the longstanding family friction.
Harbor is an 80-year-old family business engaged in the manufacture of furniture and currently has an ancillary division involving ownership and operation of a mobile home park in Parmount, California.
Internecine family disputes have arisen over the “S” corporation election which has allowed income to be passed through the corporation to the shareholders as dividends with the tax impact being born by the shareholders, without a tax being imposed on the corporation which would be the case if operated as a “C” corporation. A subchapter “S” election is favorable from the aspect of income taxation in that Harbor would not have to pay income taxes on dividends to the shareholders, but instead the only tax impact would be on the shareholders to pay the tax on dividends received. To state it differently, Harbor escapes the impact of taxation but the shareholders also benefit in that a double tax is avoided, as would be the case under a “C” election, because Harbor would theoretically have more income to distribute to the shareholders as dividends under a subchapter “S” election.
The friction among family members has arisen over the failure of Harbor to pay dividends to the shareholders under the subchapter “S” election sufficient to allow them to cover their income tax exposure for what is referred to as “pass through income.” The majority shareholders take refuge from Harbor’s intransigence to pay dividends by threatening to seek restoration of “C” status, which will indubitably result in substantial taxes being paid where Harbor now pays none.
In the face of the threat to have its tax status restored to “C” status, Harbor brought an action for injunctive relief pending resolution of the dispute among the family members. The trial court denied Harbor’s application for a preliminary injunction pending resolution of its lawsuit for permanent injunctive relief. This appeal is from denial of Harbor’s request for a preliminary injunction. For the reasons hereafter given, we affirm the decision of the trial court.
FACTUAL AND PROCEDURAL SYNOPSIS
The corporation.
Harbor was incorporated in 1957. In 1981, with the unanimous consent of all the shareholders, Harbor elected to become an “S” corporation for tax purposes. Candi Tuttleton, Ann Stuparich and Malcolm Tuttleton Jr. are siblings. The stock structure of Harbor is divided into voting and nonvoting stock. Candi Tuttleton and Ann Stuparich each own 26.3 percent of the stock in Harbor for a total combined ownership of 52.6 percent, but collectively own only 38.1 percent of the voting stock. Their brother, Malcolm Tuttleton Jr, on the other hand owns a majority of the voting stock in Harbor and is alleged by Candi and Ann to have used his majority voting position to control the board of directors for the benefit of himself and his immediate family members, including his wife and son.
Prior litigation between the parties.
The current appeal does not reflect the exclusive litigation among the parties. For historical perspective and an indication into the depth of the family discord involving Harbor, we judicially notice the prior published opinion of Division 4 of this court in Stuparich v. Harbor Furniture Manufacturing, Inc. (2000) 83 Cal.App.4th 1268. In that action Candi and Ann brought an action against the corporation seeking its involuntary dissolution pursuant to Corporations Code section 1800, subdivision (b)(5). Candi and Ann appealed from the trial court’s granting of a motion for summary judgment in favor of the corporation. The Court of Appeal affirmed, holding essentially that plaintiffs had failed to raise a triable issue of material fact regarding their claim that dissolution was reasonably necessary for the protection of plaintiffs’ rights or interests, as required under Corporations Code section 1800, subdivision (b)(5). Division 4 acknowledged that it was true that plaintiffs’ nephew, with 51.56 percent of the voting shares, could outvote plaintiffs on any issue, and that plaintiffs played no part in the daily operations of the corporation. The court, however, concluded this was not contrary to California law and did not present a reasonable necessity for dissolution. The court further concluded, although plaintiffs alleged that their brother sold his shares to his son (plaintiffs’ nephew) at discounted values, their brother was privileged to sell his shares at whatever price he chose. Observing that although the relationship between plaintiffs and their brother had become hostile, the court found there was no evidence of bad faith on the part of the nephew so as to justify dissolution. The court noted that plaintiffs continued to receive benefits from the corporation in the form of dividends until the lawsuit was filed, and although plaintiffs’ brother refused plaintiffs’ requests to buy out their minority shares, there was nothing in the language of Corporations Code section 2000, subdivision (a) which requires either the board of directors or the majority shareholders to buy the shares of the minority to avoid dissolution.
Threats to change Harbor’s tax status.
Letter of Attorney Carl Agren on May 2, 2006.
Carl Agren, attorney for both sisters Ann and Candi, sent a letter to the attorney for Harbor, William Schanz, on May 2, 2006, in which Agren threatened to have Harbor’s tax status changed from an “S” corporation to a “C” corporation unless shareholders were paid dividends in a sufficient amount to offset what the sisters referred to as phantom income on undistributed profits of the corporation.
Follow up letter of Attorney Carl Agren on May 10, 2006.
In a follow up letter dated May 10, 2006, attorney Agren sent a letter to attorney Schanz stating his opinion that it appeared prudent to terminate Harbor’s subchapter “S” election and volunteered that Harbor ought to consult an accountant about “possible adverse income tax results of such a termination.”
Response letter of Attorney William Schanz dated May 18, 2006.
Attorney Schanz responded by letter dated May 18, 2006, making inquiry why the threatened tax status change would ever be prudent for Harbor and inquiring further how there could be a good faith belief that such a change in tax status could ever be good for the corporation. The record on appeal does not contain a written response by attorney Agren to the Schanz letter of May 18, 2006.
The letter of attorney Schanz dated May 18, 2006, also contained a request for reasonable advance notice should an application be made to change the tax status from Subchapter “S” to a “C” corporation.
Emergency special board meeting of Harbor on May 30, 2006.
An emergency special board meeting of Harbor was called and held for the stated purpose of discussing and voting on the threat to change the corporation’s tax status from that of a Subchapter “S” corporation. Following the discussion and a call to vote, a change in Harbor’s tax status was rejected and the board approved a resolution declaring that there be no change in Harbor’s tax status as a Subchapter “S” corporation. The resolution was approved with two voting shareholders voting for approval, with one abstention by a board member representing the combined vote of the two sisters.
Complaint for injunctive relief by Harbor.
On June 6, 2006, in what appears to be a preemptive measure, Harbor filed its Complaint for injunctive relief in the Los Angeles County Superior Court against defendants, Candi Tuttleton, Ann Stuparich, and 20 fictitious defendants, seeking injunctive relief in a single cause of action in case no. VCO46769. The essence of the injunctive relief sought by Harbor in its complaint is found on page 3 in paragraphs 8, 9, 10, 11 and 12 where Harbor alleges on information and belief as follows:
“8. Plaintiff is informed and believes and based thereon alleges that in furtherance of the Threatened Tax Status Change, defendant CANDI TUTTLETON and defendant ANN STUPARICH have retained counsel on their behalf and authorized him to do all things necessary for the purpose of revoking the Subchapter ‘S’ tax status.
“9. Plaintiff does not want its tax status changed and has formally rejected that threatened action at a Special Board meeting that was held on Tuesday, May 30, 2006. At that meeting, the Board voted to retain its Subchapter ‘S’ status. Said resolution was approved in the presence of a Board member appointed by the defendants, which Board member abstained from the vote.
“10. Plaintiff is informed and believes and based thereon alleges that: The Threatened Tax Status Change, if accomplished, would produce both immediate and long term irreparable harm to plaintiff.[ ] The income of ‘C’ corporations is taxed twice - once to the corporation and then once again to the shareholders when they receive distributions. Income of ‘S’ corporations like HARBOR FURNITURE is never taxed. Therefore, if the ‘S’ corporation tax status is changed to ‘C’ corporation status as threatened by the defendants, Plaintiff will begin to pay corporate income taxes and will be taxed on any sale or distribution of its substantial appreciated assets.
“11. The Threatened Tax Status Change, if accomplished, would create tax liability to the corporation potentially in the multiple millions of dollars in an amount not presently ascertained. Once defendants make the application to change the tax status from the ‘S’ corporation back to a ‘C’ corporation, substantial and irreversible damage will have been done, with the company thereafter burdened by significant and continuing tax liabilities it does not now face at all.
“12. Plaintiff is informed and believes and based thereon alleges that the threatened conduct of defendant CANDI TUTTLETON and defendant ANN STUPARICH, collectively, on their own and in conspiracy with DOES 1 through 10, would amount to a breach of each’s fiduciary duties to said Plaintiff by, among other things, by acting in bad faith in their own self-interests and with direct conflicts of interest, and by otherwise acting to the detriment of Plaintiff in those ways as described herein and in those ways as may be hereafter discovered during the course of this action and to be presented at time of trial.”
Alleging more specifically in paragraphs 14, 15, 16 and 17 of its complaint, Harbor asks for temporary restraining orders, preliminary and permanent injunctions as follows:
“14. Plaintiff is informed and believes and thereon alleges that, at all times relevant herein, defendant CANDI TUTTLETON and defendant ANN STUPARICH have already engaged, or intend to engage in conduct detrimental to the interests of Plaintiff including but not limited to revoking Plaintiff’s Subchapter ‘S’ election, thereby changing Plaintiff’s tax status from that of a Subchapter ‘S’ corporation status to a ‘C’ corporation, and thus exposing Plaintiff thereafter to substantial taxes on its income and sale of appreciated property, among other things.
“15. Plaintiff is informed and believes and thereon alleges that, at all times relevant herein, defendant CANDI TUTTLETON and defendant ANN STUPARICH have threatened to follow through with The Threatened Tax Status Change despite the communicated objection of the Plaintiff and absence of corporate approval for The Threatened Tax Status Change.
“16. Plaintiff is informed and believes and thereon alleges that a financial burden and risk of irreparable harm will occur should defendant CANDI TUTTLETON and defendant ANN STUPARICH, and DOES 1 through 20, inclusive, acting in concert with them, not be enjoined and restrained from doing the following:
“A. From communicating with any taxing authority including but not limited to the Internal Revenue Service and the California Franchise Tax Board, regarding in any way Harbor Furniture Manufacturing, Inc.’s Subchapter ‘S’ tax election;
“B. From engaging in any conduct for the purpose of changing the tax status of Harbor Furniture Manufacturing, Inc. from a Subchapter ‘S’ corporation to a ‘C’ corporation;
“C. From making any application to revoke the Subchapter ‘S’ election of Harbor Furniture Manufacturing, Inc.;
“D. From approving any change in the tax status of Harbor Furniture Manufacturing, Inc.;
“E. From transferring any shares of stock in Harbor Furniture Manufacturing, Inc. to any corporation, entity, non-individual or non-resident alien;
“F. From Engaging in conduct in violation of the fiduciary duties described herein. The above are described collectively as the ‘Prohibited Acts.’
“17. Plaintiff has demanded that defendant CANDI TUTTLETON and defendant ANN STUPARICH, and DOES 1 through 10, inclusive, acting in concert with them, stop and refrain from engaging in any of the Prohibited Acts. Plaintiff is informed and believes and thereon alleges that, at all times relevant herein, said defendants, and each of them, have refused and continue to refuse to refrain from such actions.”
Ex parte application by Harbor on June 8, 2006, for temporary restraining order and order to show cause for preliminary injunction.
On June 8, 2006, Harbor filed its “Ex parte application for temporary restraining order and for order to show cause why a preliminary injunction should not be issued” pending litigation of the action. The application was supported by a memorandum of points and authorities and the declarations of Malcolm Tuttleton, Jr., Greg Lewis and William L. Schanz and cited sections 526, subdivision (a) and 1281, subdivision (b) of the Code of Civil Procedure in support of the requested order.
Unless otherwise indicated, all statutory references are to the California Code of Civil Procedure.
The defendant sisters appeared by attorney Agren and filed opposition to Harbor’s request for ex parte temporary restraining orders on June 8, 2006. The trial court granted Harbor’s motion and the matter was set down for a contested hearing on June 23, 2006, for plaintiffs to show cause why the relief requested by Harbor should not be granted during the pendency of the action.
Cross complaint by the sisters against Harbor.
On June 16, 2006, the defendant sisters filed a general denial of the allegations contained in the complaint of Harbor which also pled eight affirmative defenses. In addition to their general denial, the defendant sisters cross complained against Harbor seeking its involuntary dissolution on grounds that Malcolm Tuttleton, through his control of Harbor, had been guilty of or had knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward the sisters; that Harbor’s property was being misapplied or wasted by its directors or officers; and that liquidation was reasonably necessary for the protection of the rights or interests of the cross-complaining sisters.
Hearing on the order to show cause seeking preliminary injunction on June 23, 2006.
The trial court called the matter for hearing on June 23, 2006, and took the matter under submission. After considering the arguments of counsel, the moving and responding papers filed in support of and in opposition to the requested preliminary injunction, the court denied the motion.
Hearing on the ex parte application of Harbor to continue the temporary restraining order or for grant of preliminary injunction pending appeal, on June 30, 2006.
Harbor announced its intention to appeal the court’s ruling denying the preliminary injunction on June 23, 2006, and moved the court to continue in force its temporary restraining order or to grant a preliminary injunction pending Harbor’s appeal of the prior denial of its application for a preliminary injunction. The court read and considered the ex-parte application and the arguments of both counsel and denied the requested relief. In passing, at the time of oral argument, the court considered the application to be more in the nature of a motion for reconsideration, found nothing new, and stated the court’s belief that it was correct in its ruling on June 23, 2006.
Notice of appeal timely filed by Harbor.
On June 30, 2006, Harbor filed a timely notice of appeal from the “Denial of Plaintiff’s motion for Preliminary Injunction” entered on June 23, 2006, citing section 904.1, subdivision (a)(6) in support thereof, which authorizes an appeal “[f]rom an order granting or dissolving an injunction, or refusing to grant or dissolve an injunction.”
Standard of review.
There appears to be no serious dispute pertaining to the standard of review to be employed by an appellate court in reviewing whether the trial court acted properly in granting or denying the issuance of a preliminary injunction. The standard is whether the trial court abused its discretion in making its ruling. As Harbor correctly asserts, two interrelated factors come into play in making a discretionary ruling. The analysis begins by asking the first and initial question of whether there is a likelihood that a plaintiff will prevail on the merits at time of trial. The second factor addresses the interim harm that a plaintiff is likely to sustain if the injunction were to be denied as compared to the harm that the defendant is likely to suffer if the injunction is issued.
The California Supreme Court has addressed the discretion required of a trial judge in ruling on an application for preliminary injunction on numerous occasions. In Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286-287, our high court stated: “Generally, the ruling on an application for a preliminary injunction rests in the sound discretion of the trial court. The exercise of that discretion will not be disturbed on appeal absent a showing that it has been abused. [Citation.] When a trial court denies an application for preliminary injunction, it implicitly determines that the plaintiffs have failed to satisfy either or both of the ‘interim harm’ and ‘likelihood of prevailing on the merits’ factors. On appeal, the question becomes whether the trial court abused its discretion in ruling on both factors.” The high court elaborated further in Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, at page 527, that a trial court will have abused its discretion only when it has “exceeded the bounds of reason or contravened the uncontradicted evidence.” Our Supreme Court gave further guidance to the trial court in exercising its discretion by reminding that the law of equity comes into play which requires a balancing of the respective equities involved in the dispute. In IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, at pages 69-70, our high court stated “[By] balancing the respective equities of the parties, [the trial court] concludes that, pending a trial on the merits, the defendant should or that he should not be restrained from exercising the right claimed by him.”
Bearing in mind the standards and the parameters set forth by the California Supreme Court in Cohen, IT Corp. and Continental Baking Co. we proceed with the discussion of the trial court’s denial of Harbor’s application for preliminary injunctive relief.
DISCUSSION
In opposition to the preliminary injunction sought by Harbor, the sisters presented the following evidence for the trial court to consider in balancing the equities, which the sisters vigorously contend is in their favor. They summarize the evidence as follows on pages 12, 13 and 14 of their respondents’ brief on appeal as follows:
“A. Revenue and Taxation Code § 1362(d), 46 U.S.C. 1362(d) provides that the shareholders holding more than 1/2 of the total stock of the company may terminate a corporation’s S Corporation tax status. No approval of the Board of Directors for the corporation involved is needed.
“B. The defendants herein hold more than 51% of the total shares of Harbor Furniture stock.
“C. The right the defendants hold to elect to terminate Harbor Furniture’s S Corporation tax status is given to them under federal law, namely 46 U.S.C. 1362. The request for a preliminary and permanent injunction seeks an order denying the defendants from ever exercising the right specifically given to them under federal law. Therefore, the requested preliminary and permanent injunction if issued, would violate the Supremacy Clause of the United States Constitution.
“D. Since 2002, no dividends have been paid to the defendants. (CT 151-152)
“C.[sic] In 2004, Malcolm Tuttleton, who holds the majority of the voting stock in Harbor Furniture, and who has elected himself and his wife to the 3 member Board of Directors for Harbor Furniture, received a salary of $128,571. (CT 90) His wife received a salary of $131,804) (CT 90), and his son received a salary of $82,843 (CT 90) from Harbor Furniture. Due to Malcolm Tuttleton’s control of the Harbor Furniture Board of Directors, he, his wife and his son have been named as officers of Harbor Furniture. (CT 90)
“D.[sic] In 2004, Malcolm Tuttleton received a cash distribution from Harbor Furniture in the amount of $58,735. (CT 152). No money was paid to the defendants during this 2004 fiscal year. (CT 152).
“E. [sic] In 2004, Harbor Furniture deducted $77,379 in travel expenses though it paid only $8,068 in commissions. (CT 90)
“F. [sic] In 2004, the furniture manufacturing division of Harbor Furniture, which is run and managed by Malcolm Tuttleton, used $340,000 of the profits from the mobile home park owned by Harbor Furniture Inc. to cover the ongoing losses of the furniture manufacturing division. (CT 92)
“G. [sic] In 2004, Harbor Furniture had a retained earnings in the amount of $323,478 but paid no dividends to the defendants. (CT 108, 152). Even after Malcolm Tuttleton received a distribution of $58,735 (CT 151-152, 108), and although $265,602 remained in the Harbor Furniture account as retained earnings, (CT 108), no money was distributed to the defendants to cover the taxes they have had to pay as a result of Harbor Furniture’s S Corporation tax status. (CT 152).
“H. [sic] In 2005, Malcolm Tuttleton, received a salary of $200,000. (CT 91). This was an increase in his salary of $71,429 from the previous year (CT 90). His wife received a salary of $121,341(CT 91) and his son received a salary of $66,700) from Harbor Furniture. (CT 91)
“I. [sic] In 2005, Malcolm Tuttleton received a cash distribution from Harbor Furniture in the amount of $51,972 (CT 152). No money was paid to the defendants during this 2005 fiscal year. (CT 152)
“J. [sic] In 2005, Malcolm Tuttleton deducted $58,107 in travel expenses though it paid only $8,535 in commissions. (CT 91)
“K. [sic] In 2005, the furniture manufacturing division of Harbor Furniture, which is run and managed by Malcolm Tuttleton, used $380,000 of the profits from the mobile home park owned by Harbor Furniture Inc. to cover the ongoing losses of the furniture manufacturing division. (CT 92)
“L. [sic] In 2005, Harbor Furniture had a retained earnings amount of $250,014 (CT 110) but paid no dividends to the defendants. (CT 152)
“M. [sic] The mobile home park owned by Harbor Furniture is valued at over $10 million.(CT 82:25-27)
“N. [sic] Because Malcolm Tuttleton holds the majority of the voting shares of Harbor Furniture stock(CT 81:23-27), and has elected himself and his wife to two of the three placed on the Harbor Furniture Board of Directors (CT 30), he has control over the decisions made regarding the sale of Harbor Furniture assets, and the distribution of Harbor Furniture income.
“O. [sic] Based upon the increases in salary to Malcolm Tuttleton, his wife, and son in 2004 and 2005, the distributions made to Malcolm Tuttleton alone in 2004 and 2005, and the large sums paid for travel, meals and entertainment expenses for the furniture division of Harbor Furniture, it appears that he has used his control of the company to benefit himself to the detriment of his two sisters, the defendants herein. (CT 90-92, 108, 110, 152)”
Harbor, on the other hand, while conceding that the sisters, as majority shareholders, can collectively ask the Internal Revenue Service to revoke Harbor’s Subchapter “S” tax status, argue such action would be in violation of their fiduciary duties to the corporation and the minority shareholders, citing the principles enumerated by the California Supreme Court decision in Jones v. HF Ahmanson (1969) 1 Cal.3d 93. In Ahmanson the California Supreme Court at page 108 addressed the issue of the fiduciary duties of majority shareholders in the following manner: “. . . [m]ajority shareholders, either singly or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner. Majority shareholders may not use their power to control corporate activities to benefit themselves or in a manner detrimental to the minority. Any use to which they put the corporation or their power to control the corporation must benefit all shareholders proportionately and must not conflict with the proper conduct of the corporation’s business.” Harbor concedes that with 26.3 percent of the stock each in Harbor, the sisters in fact constitute the majority shareholder -- citing the California Supreme Court decision in Waller v. Truck Insurance Exchange, Inc. (1995) 11 Cal.4th 1, 11, that the majority shareholder can either be a single shareholder or a group of shareholders acting in concert to accomplish a joint purpose.
Relying heavily on Ahmanson, in asserting that the sisters will be in breach of fiduciary duties if they succeed in changing the tax status of Harbor from an “S” corporation to a “C” corporation, Harbor summarizes its position as follows on page 15 of its opening brief: “Although not the majority in voting control for other purposes, Candi Tuttleton and Ann Stuparich are in apparent unrestrained control of the Subchapter ‘S’ tax election status. They are thus subject to the directives of Ahmanson when making any move that might affect the corporation’s tax obligations. In that light, the proper conduct of the corporation’s business is to maximize profits and minimize taxes. Candi Tuttleton and Ann Stuparich threaten to maximize the corporation’s taxes unless they receive dividend distributions for their personal benefit. Favoring their personal benefit over the corporate well being is a breach of their fiduciary obligation under Ahmanson.
“Harbor Furniture contends that, under Ahmanson, the trial court was not correct when it concluded that a personal shareholder benefit of avoiding pass through income is an adequate corporate benefit. That personal gain does not provide any corporate benefit whatsoever and it absolutely conflicts with the proper conduct of the corporation’s business, one of which goals must be to minimize payment of taxes. Billion’s [sic] of dollars are spent annually by companies in their pursuit of minimizing taxes and, at least for Harbor Furniture, that desired outcome is out the door with the present trial court ruling which most certainly favors personal gain over corporate gain, in direct conflict with the teachings of Ahmanson.
“Because HARBOR FURNITURE does not want to change its Subchapter ‘S’ tax status, any application by the defendants to change that status to a taxable ‘C’ corporation against that corporate will, while it may be permitted by IRS rules, must nonetheless be considered a direct violation of each defendants’ fiduciary duties to the corporation.”
In urging that the general principles set forth in Ahmanson should have compelled the trial court to grant Harbor’s application for preliminary injunctive relief, Harbor buttresses its argument by citing a federal court decision pertaining to an application of the law of Massachusetts. Harbor contends that A.W. Chesterton Co. v. Chesterton (1st Cir.-1997) 128 F.3d 1 is a case with strikingly similar facts involved in the Harbor appeal. Application of Chesterton to the facts of this case are summarized by Harbor on page 18 and 19 of its opening brief on appeal as follows: “Injunctive relief has been upheld in A.W. Chesterton Co., Inc. v. Chesterton (1st Cir. 1997) 128 F.3d 1, a case with strikingly similar facts. . . . In that case a minority shareholder desired to sell his stock. There were no buyers and the company would not buy the shares back. The shareholder then planned to transfer his stock to a corporation he owned. Although the planned transfer was not barred by the corporate bylaws, the transfer to another corporation would, under IRS rules, disqualify the corporation from keeping the Subchapter ‘S’ tax status it enjoyed for almost twenty years.
“The corporation sued to block the transfer. Applying Massachusetts’ law, the trial court granted a permanent injunction. The appellate court affirmed, holding that: (1) the minority shareholder had an elevated fiduciary duty to the corporation and other shareholders; (2) the shareholder’s proposal to sell shares to other corporations and thus terminate the corporation’s Subchapter S status, was a breach of his fiduciary duty; (3) there was no legitimate business purpose in the proposed transaction; (4) the corporation would suffer irreparable harm as [a] result of sale; and (5) the balance of equities weighed in favor of the injunction.”
This court does not find the general principles set forth in Ahmanson, nor in the Chesterton decision applying the law of Massachusetts, to compel a determination as a matter of law that the trial court erred in exercising its discretion that the preliminary injunctive relief sought by Harbor was not compelled in this instance. Pertaining to the Chesterton decision, we note that Chesterton can be considered as persuasive authority but is by no means a binding decision which we are compelled to follow under the doctrine of stare decisis. Further, we find the decision not as “strikingly similar” to facts of this case as Harbor would have this court believe. It is glaringly apparent from Harbor’s description that it was a minority shareholder who was attempting to take action which would have affected the corporation’s “S” tax status under the law of Massachusetts. As Harbor previously points out, citing the Waller opinion, the situation is reversed in this instance because it is the majority shareholders acting under the combined voting power of the sisters who are in a position to leverage fair treatment for all of the shareholders. This distinction aside, we find nothing to indicate that the sisters are undertaking, or threatening to undertake, anything that is not afforded to them by law under the Revenue Code of the United States and the regulations pertaining thereto.
As a final note we remind counsel that it is the trial court that has the jurisdiction to exercise its discretion and not the Court of Appeal, although one or more individual member of the panel might have come to a different conclusion as a trial judge in the exercise of discretion.
We conclude that the trial court did not exceed the bounds of reason in balancing the equities in this case when considering the evidence before it, Harbor’s likelihood of prevailing on the merits, and in considering the interim harm that might occur in denying the requested relief.
DISPOSITION
The order denying appellant’s motion for preliminary injunction is affirmed. Respondents are awarded costs of appeal.
We concur: PERLUSS, P.J. ZELON, J.