Turner v. Flynn & Emrich Co.

Singley, J., delivered the opinion of the Court. Chapter 649, § 10 of the Laws of 1967, now Maryland Code (1957, 1973 Repl. Vol.) Art. 23, § 79A (the Act) provides, in part: “(b) Any holder of shares entitled to vote at an election of directors of a corporation may petition a court of equity to dissolve the corporation on one or both of the following grounds: ^^ * * * (2) That the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent.” (Emphasis supplied) The Act goes on to provide for the appointment, after notice and hearing, of one or more receivers or trustees to preserve the business and assets of the corporation, and to liquidate, if the court determines that the corporation should be dissolved. The question posed by this case is whether the appellants, who own no stock in a corporation, but are income beneficiaries of a testamentary trust which holds the stock, can avail themselves of the relief provided by the Act.

The case came on for hearing below in the Circuit Court of ⁴⁰⁹ Baltimore City on a demurrer to the appellants’ bill of complaint. From an order sustaining the demurrer without leave to amend, this appeal was taken. The bill of complaint alleged that the appellants, Arthur Gordon Turner, Jr. and Jane Taggart Turner (the Turners) are the beneficiaries of a trust created by the will of Arthur Gordon Turner; that an unspecified number of shares of Flynn & Emrich Company of Baltimore City (the Company) are held by the trust of which the Turners are beneficiaries, and then recited a series of acts of the officers and directors of the Company which the Turners characterized as illegal, oppressive and fraudulent within the meaning of the Act. The thrust of the Company’s demurrer was that absent an allegation by the Turners that they were the “holder[s] of shares entitled to vote at an election of directors” of the Company, the Turners lacked the standing necessary to seek relief under the Act.

We think that the chancellor was entirely correct when he sustained the demurrer. The Turners cite a number of cases from other jurisdictions in support of their contention that the ownership of an equitable interest in stock is enough to support a stockholder’s action. 1 What this overlooks is that Maryland, and some 20 other states, have passed statutes which are generally similar to § 97 (a) of the Model Business Corporation Act adopted by the American Bar Foundation in 1960, see Note, Corporate Dissolution for Illegal, Oppressive or Fraudulent Acts: The Maryland Solution, 28 Md. L. Rev. 360 (1968). However, the Model Act provides: “The .......... courts shall have full power to liquidate the assets and business of a corporation: ⁴¹⁰ (a) in an action by a shareholder when it is established: ^ * * * (2) that the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent;. . .” Thus, while the philosophy of our Act and of the Model Act is the same, our Act is structured in a markedly different fashion, since we have introduced a new ingredient: that to maintain his action, the petitioner must be a “holder of shares entitled to vote at an election of directors of [the] 'corporation.” This distinguishing factor seems to be shared with at least four other states: Connecticut, Michigan, Nevada and New Jersey. 2 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,