In re the Voluntary Dissolution of Radom & Neidorff, Inc.
1954 N.Y. LEXIS 1010, 307 N.Y. 1, 119 N.E.2d 563 (1954)
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Rule of Law:
Judicial dissolution of a corporation due to shareholder deadlock is a discretionary remedy that will not be granted where the corporation continues to be profitable and its operations are not impaired, even if the shareholders are unable to elect a board of directors.
Facts:
- For many years, David Radom and his brother-in-law, Henry Neidorff, were the sole and equal stockholders in Radom & Neidorff, Inc., a successful music lithographing business.
- Radom and Henry's wife, Anna Neidorff (Radom's sister), were personally unfriendly to each other.
- In February 1950, Henry Neidorff died, bequeathing his 50% stock ownership to his wife, Anna.
- Following Henry's death, David Radom and Anna Neidorff became the two sole, equal stockholders.
- At a stockholders' meeting in June 1950, the two were unable to elect a board of directors due to their divided votes and disagreements.
- Radom continued to manage the business's day-to-day operations.
- Anna Neidorff refused to sign corporate checks for Radom's salary, and she filed a separate derivative suit against him.
- Despite the shareholder conflict and inability to elect directors, the corporation's business flourished, with its profits increasing and its assets trebling during the dispute.
Procedural Posture:
- David Radom filed a verified petition in the New York Supreme Court, Special Term (trial court), seeking the dissolution of Radom & Neidorff, Inc.
- The Special Term granted an order for a reference to a referee to hear the allegations and proofs of the parties.
- Anna Neidorff, the respondent, appealed the Special Term's order to the Appellate Division of the Supreme Court (intermediate appellate court).
- The Appellate Division reversed the order of the Special Term and dismissed the petition.
- David Radom, the petitioner, then appealed the Appellate Division's dismissal to the Court of Appeals of New York (the state's highest court).
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Issue:
Does a deadlock between a corporation's two equal shareholders, which prevents the election of a board of directors, mandate judicial dissolution under section 103 of the General Corporation Law, even when the corporation remains highly profitable and its management is not otherwise paralyzed?
Opinions:
Majority - Desmond, J.
No. A deadlock that prevents the election of directors does not mandate judicial dissolution when the corporation remains profitable and its management is not otherwise paralyzed. The governing statute grants courts discretion, and dissolution is an extreme remedy to be invoked only out of necessity. The prime inquiry is whether dissolution is beneficial to the stockholders because the corporation's competing interests are so discordant as to prevent efficient management and frustrate the attainment of its corporate objectives. Here, there is no stalemate as to corporate policies, and the corporation is not sick but flourishing. The petitioner's grievance regarding his unpaid salary is a personal dispute that can be remedied by other means and does not justify the 'judicially-imposed death' of a successful enterprise.
Dissenting - Fuld, J.
Yes. The petition for dissolution should have been entertained, and a hearing on the facts was mandatory. The statute's plain language permits a petition for dissolution when stockholders are so divided they cannot elect a board of directors, which is precisely the situation here. The majority improperly focuses on the corporation's profitability, whereas the sole issue under the statute is whether a managerial deadlock exists. The ongoing discord, unpaid salary, and pending litigation demonstrate a fundamental breakdown that cannot be solved by more litigation and threatens the company's future. The law was designed to provide a remedy for such an impasse before irreparable injury occurs, and dismissing the petition without a hearing was an abuse of discretion.
Analysis:
This decision establishes that corporate profitability and operational stability can override a shareholder deadlock as grounds for judicial dissolution in New York. It sets a precedent that courts should exercise their discretion to preserve a functioning enterprise rather than order its dissolution simply to resolve shareholder disputes. The ruling raises the bar for petitioners seeking dissolution, requiring them to demonstrate not just a deadlock in governance, but that this deadlock is actively paralyzing the corporation's business and frustrating its purpose. This prioritizes the entity's survival over the shareholders' inability to co-exist.
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