Lynch v. Buchanan

Menchine, J., delivered the opinion of the Court. In 1971 and prior years, Henry M. Buchanan, trading as Henry M. Buchanan Company, had conducted his business as a licensed certified public account (CPA) in his individual capacity. George F. Lynch, then not licensed as a CPA, was employed as an accountant by Buchanan. In December 1971, Henry M. Buchanan undertook the organization of a professional corporation for profit pursuant to the provisions of the Maryland Professional Service Corporation Act (Corporations and Associations Article, §§ 5-101 through 5-122).

The corporate entity, known as “Henry M. Buchanan, CPA, P.A.” began operations on January 2, 1972, with Henry M. Buchanan as its sole stockholder with 300 shares. George F. Lynch was designated as Director of the corporation in the Articles of Incorporation. On March 7, 1972, George F. Lynch, who by then had been licensed as a CPA, became a stockholder of the professional service corporation with one hundred shares. * 1 Both Buchanan and Lynch became employees of the corporation. The new corporation passed the first year of its existence in seeming harmony, with Buchanan its president; Lynch its ⁴¹⁵ vice president and secretary.

In September 1973, this semblance of harmony “melted into air, into thin air.” Buchanan put it that, “September 20, 1973, George Lynch called me up on the phone at 10 o’clock and said basically, ‘I quit.’ And then at 10:01 said, T am now working for the Financial Committee for Mr. Nixon.’ ” 2 Lynch put it that, “I had a disagreement with Mr. Buchanan.” He explained that, “When I left the corporation my thought was to completely disassociate myself from the corporation. So I wanted to get rid of my shares of stock.” Lynch’s departure from the corporation was followed on the same day by the departure of employee Joseph Quinn, who, with Lynch and Buchanan, had comprised the three CPA’s employed by the corporation. The effect of these withdrawals was thus described by Buchanan: “I was faced with a tremendous workload. We had a 60-day period during which to prepare the report for Judge Waddy. t 3 l It took most of my people.

My work was extremely backed up and I was faced with the tax season coming up during which time my office prepared over 200 tax returns. Two men walked out on me. Q How many hours per day did you work prior to the time Mr. Lynch and Mr. Quinn left your firm? A I would say before they left I was putting in about 50 hours a week.

Then after they left in the range of 60 to 70 hours a week.” ⁴¹⁶ On December 10, 1973, Lynch addressed a letter to Buchanan, reading in appropriate part as follows: “Hank, as I am no longer actively associated with Henry M. Buchanan, CPA, PA, I am not interested in reaping benefits from the continued success of the organization. I am, however, interested in ‘cashing in’ for my efforts. In order to properly evaluate the worth of the stock, I want to review a current financial statement and I am asking for an accrual financial statement based on what you have told me in the past, namely that, the officers owe to the stockholders an accounting. “If you or the corporation is interested in purchasing my stock, I will, of course, give you first option. To be fair I will mention that I have already received an offer for my stock from a Certified Public Accountant. “I hope we can work this out quickly and amicably.” His hope proving vain and his complaints unresolved, Lynch, on September 6, 1974, filed a “Petition for Involuntary Dissolution” against Henry M. Buchanan, CPA, P.A., in the Circuit Court for Montgomery County, in Equity.

Henry M. Buchanan and Micheline E. Buchanan 4 were joined as parties defendant. After answers and a multiple day trial, the chancellor dismissed the petition. Lynch has appealed. Corporations and Associations Article, § 3-413 (b) (2) provides as follows: “Any stockholder entitled to vote in the election of directors of a corporation may petition a court of equity to dissolve the corporation on grounds that: ...

(2) The acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent.” In discussing the meaning and effect of this statutory provision in Turner v. Flynn & Emrich Co., 269 Md. 407, 410 , ⁴¹⁷ 306 A. 2d 218, 219 (1973), Judge Singley for the Court of Appeals said: “It is a generally recognized principle that absent extraordinary circumstances, without an enabling statute a court of chancery has no jurisdiction to decree the dissolution of a corporation on application of a shareholder, Wall & Beaver Street Corp. v. Munson Line, 58 F. Supp. 101, 107 (D. Md. 1943) (applying Maryland law); Murray-Baumgartner Surgical Instrument Co. v. Requardt, 180 Md. 245, 252 , 23 A. 2d 697 (1942), and that when a statutory remedy is available, the complainant must bring himself within the express terms of the act, Hill v. Vaill, 23 Conn. Sup. 72 , 176 A. 2d 881, 883 (1961); Coucounas v. Coucounas, 33 Misc. 2d 559 , 225 N.Y.S.2d 410 (1962); Gordon v. Graham, 137 W. Va. 553 , 73 S.E.2d 132, 135 (1952); 16A Fletcher, Cyclopedia of the Law of Private Corporations § 8083 at 214-15 (1962 Rev. Vol. I.” We think this statutory provision was not intended to extend in any material way the long standing rule of law reiterated in Williams v. Ice Co., 176 Md. 13, 26 , 3 A. 2d 507, 513 (1939), wherein it was said: “In a word, if the question involved is one concerning the internal management of corporate affairs, void of acts ultra vires, fraudulent, or illegal, courts of equity will refrain from granting relief to a minority stockholder, or, as stated in McDoughall v. Gardiner, L.R. 1 Ch. Div. 21 (cited with approval in Shaw v. Davis, supra, and Davis v. Wright, supra): ‘Nothing connected with the normal internal disputes between the shareholders is to be made the subject of a bill by some one shareholder in behalf of himself and others, unless there be something illegal, oppressive or fraudulent — unless there is something ultra vires on the part of the company, qua company, or on the part of the ⁴¹⁸ majority of the company, so that they are not fit persons to determine it; . . .” Appellant, in paragraphs 10 and 11 of his petition, made numerous allegations of suggested illegal, oppressive and fraudulent conduct.

The chancellor found no evidence supportive of the bulk of those allegations. Our examination of the record persuades us that this conclusion of the chancellor was correct and that it is necessary for us here to discuss only the issues raised by paragraphs 10a, 11a, lib, and llh of the petition that read as follows: “(10) That since that time, Defendant Henry M. Buchanan, as managing officer and .director of the .Corporation, has acted in an illegal manner in the following particulars: (a) Defendant Henry M. Buchanan allegedly held stockholders meeting on January 4, 1974, without written notification to other stockholders. (11) That Defendant Henry M. Buchanan, as managing officer and director of the Corporation, has acted in a fraudulent manner in the following particulars: (a) Defendant Henry M. Buchanan arbitrarily raised his salary by authorizing and paying himself a bonus in excess of $20,000.00 as of January 31, 1974, which, on information and belief, was for the purpose of lowering Petitioner’s equity in the Corporation to compel Petitioner to sell his stock at an inadequate price. (b) Defendant Henry M. Buchanan allowed, and is continuing to allow, the loaning of corporate funds to himself and his wife, Micheline E. Buchanan, to pay their personal obligations.

(h) On information and belief, Defendant Henry M. Buchanan invested in the profit sharing plan corporate funds over and above the amount allowed for those then eligible to participate therein with the intent to ⁴¹⁹ deprive Petitioner of, and mislead Petitioner to, the value of his stock. Said actions were also done to benefit Defendant Henry M. Buchanan by increasing his share of the profit sharing plan.” The trial judge filed a written opinion in the cause. We conclude that the chancellor’s findings of fact were based upon substantial