Opinion
CV166030620S
06-16-2017
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE MOTION FOR STAY AND SCHEDULING OF VALUATION HEARING #133
Andrew W. Roraback, J.
I
Background
The plaintiff, William Lowenthal, brings this action in his capacity as Executor of the Estate of Marie C. Lowenthal (" the Estate"). The Estate is the owner of fifty percent of the shares of St. Pierre Oil Company, Incorporated (" the Corporation"). The remaining fifty percent of the shares of the Corporation are owned by the Frederick C. St. Pierre Revocable Trust of May 6, 1998, as to which the defendants Shirley Burnett, Audrey Jannety and Muriel St. Pierre are Trustees. The Directors of the Corporation are William Lowenthal and Audrey Jannety. The President of the Corporation is Richard Jannety (" the President"), the spouse of Audrey Jannety.
On October 20, 2016, against the backdrop of a shareholder and director deadlock, the plaintiff filed a Motion for Judicial Dissolution of the Corporation pursuant to General Statutes § 33-896(a)(1).
On December 16, 2016, the President, acting unilaterally and without a formal vote of either the directors or the shareholders of the Corporation, executed a document pursuant to which the Corporation has purported to exercise its right to make an election to purchase all of the Estate's shares in the Corporation at their fair value (" the election") pursuant to General Statutes § 33-900.
Presently pending before the court is the defendants' motion to stay action on the plaintiff's motion for dissolution. The defendants contend that the court should hold in abeyance any action on the motion for dissolution pending a determination of the fair value at which the Corporation should be ordered to purchase the plaintiff's shares in connection with the election as provided for in § 33-900. The plaintiff objects to this motion on the ground that the election is void by virtue of the inability of the Corporation to legally effectuate such an election because of the director and shareholder deadlock.
II
Discussion
The statutory language whose interpretation is dispositive of the present motion is found in § 33-900(a), which provides in pertinent part: " In a proceeding under subdivision (1) of subsection (a) of section 33-896 to dissolve a corporation, the corporation may elect . . . to purchase all shares owned by the petitioning shareholder at the fair value of the shares." Curiously, the corporation may exercise this right only in cases where the petitioning shareholder seeks to establish under § 33-896(a)(1) that the " [t]he directors are deadlocked in the management of the corporate affairs." The question of first impression now before this court is whether there is a means by which a corporation may lawfully make such an election in cases where there is both shareholder and director deadlock. More specifically, this court must determine whether the president of a corporation may properly trigger a corporate election without the affirmative vote of either the shareholders or the directors.
In light of the dearth of authority on this narrow question in Connecticut, the defendants have cited to a particular New York case as instructive on the issue. In Ferolito v. Vultaggio, 99 App.Div.3d 19, 26-27, 949 N.Y.S.2d 356 (2012), the court held that, despite a prior owners agreement among shareholders which provided that " all material matters [regarding the corporation] be resolved by mutual agreement, " a shareholder who had moved for dissolution could not enforce the terms of the owners agreement to prevent the remaining shareholder from causing the subject corporation to exercise its election rights.
The New York court reasoned that " [s]uch an election is superior to dissolution because it permits the continuation of the corporation's existence . . . The buyout election accommodates the interests of the respective parties in ensuring the continued functioning of the business, while also protecting the financial interest of the shareholders and creditors . . ." (Citations omitted; internal quotation marks omitted.) Id., 25-26. The court went on to conclude that " [t]o adopt [the party seeking dissolution's] argument that a shareholder who commences a judicial dissolution proceeding can continue to assert management rights with respect to the corporation's right of election pursuant to [statute] would thwart the statutory purpose of promoting the continuation of corporate enterprises. Absent an explicit agreement between the shareholders to limit the corporation's ability to exercise its statutory election right following the filing of a dissolution petition by one of its shareholders, the corporation may, without the consent of the petitioning shareholder, invoke its right of election pursuant to [statute]." Id., 26.
Here, in support of its argument that the election is invalid, the plaintiff points to several Connecticut cases in which the court has had to confront the consequences that flow from shareholder and director deadlock. Chief among them is Krall v. Krall, 141 Conn. 325, 106 A.2d 165 (1954). In that case, the court concluded that it had the authority to appoint a receiver because shareholder deadlock resulted in the corporation having no directors and unable " to function . . . in accordance with the statutes relating to corporations." Id., 335. In reaching this determination, the court noted that " [i]t is fundamental to the concept of a corporation that its affairs are to be controlled by a board of directors . . ." Id., 334.
Not raised or discussed in the Ferolito decision is the question of whether the directors of the corporation in that case voted to approve the election or whether there was director deadlock. These considerations are pertinent to the extent that New York corporate law has an analogue to General Statutes § 33-735(b) which provides, in relevant part, and consistent with the holding in Kroll, that " [a]ll corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed by or under the direction of, its board of directors . . ."
In that § 33-900 confers upon the corporation the power to elect only in cases where " the directors are deadlocked in the management of the corporate affairs, " and given the policy preference evinced by this statute to allow for the perpetuation rather than the dissolution of the corporate entity, the only logical way to give effect to this statute is to conclude that a petitioning shareholder may not invoke shareholder or director deadlock as a reason to prohibit a corporate president from effectuating the corporate election. To read the statute otherwise would be to render this option a nullity. " [T]he principle that the legislature does not enact a meaningless statute must be controlling." Sanzone v. Board of Police Commissioners, 219 Conn. 179, 192, 592 A.2d 912 (1991).
Some of the confusion around this issue might have been mitigated had the non-petitioning director, Audrey Jannety, voted to direct the President to effectuate the election. In light of the unity of interest of the defendants and the corporate president, the failure of Audrey Jannety, in her capacity as director, to vote to have the corporation make this election does not operate to negate the validity of the president's action.
In light of the considerations set forth above, the defendants' Motion for Stay and Valuation Hearing is granted. The parties are ordered to communicate with the case flow office so as to choose a date for the subject Valuation Hearing.