Smith v. Atlantic Properties, Inc

Facts

Wolfson offered the three Plaintiffs, Paul T. Smith et al., to go in equal shares in the purchase and development of some real estate. The partners formed Atlantic Properties with each party becoming a 25% shareholder, and Atlantic then bought the property in 1951. The corporate by-laws provided that any proposals had to be approved by at least 80% of the directors, meaning that in real terms for the group of four there would need to be a unanimous vote. The corporation was profitable every year through 1969 but dividends were only paid in 1964 and 1970. Because so much of the value of the company was in cash, the Internal Revenue Service assessed penalty taxes in seven different years for the accumulation of the money. Wolfson was the lone dissenter for the voting for dividends, and his vote was enough to defeat the proposals under the 80% plan in the by-laws. Wolfson maintained that he wanted the money for improvements to the property, and Plaintiffs asserted that he w anted to avoid his own personal tax issues. Plaintiffs then sought damages from Defendants for dividends, damages due to the tax penalties and legal expenses, and also asked to remove Wolfson as a director. The lower court agreed with Plaintiffs that dividends should be issued and that Defendants were liable for the tax penalty amounts.