Chapter 12

That bum has cheated us for the last time," David Simms said as he walked out the office door. David Simms and his brother, Don, had just finished their initial interview with Ms. Booth, the attorney who would handle their case. Their tale was one of financial abuse by their older brother, Steve.

Their father, Dilbert Simms, died in December 2007 and left his plumbing business, Simms Plumbing, Inc., to his three sonsSteve, Don, and David. Steve, who had been running the business since 2005, was left 52 percent of the stock. David and Don, who had never worked at Simms Plumbing and were employed in other occupations, were each left 24 percent.

As the majority shareholder, Steve completely controls the business. To date, he refuses to issue stock dividends even though the corporation has an accumulated cash surplus of $750,000.00. He has given himself three very large salary increases and several cash bonuses since his father's death. When questioned by David and Don about stock dividends, he tells them, "You don't work in the business. You don't deserve any money out of it. If you want any money, you're going to have to work at the store, every day, just like I do."

After this conversation, David and Don consulted the supervising attorney, Ms. Booth. They seek redress for the wrong they feel their brother has committed in refusing to issue dividends.

Ms. Booth directs the paralegal to find the applicable statute and the leading case on point in the jurisdiction. The statute, 96-25-16 of the Business Corporation Act, provides that a court may order the liquidation of a corporation when a majority shareholder has engaged in oppressive conduct. The statute, however, does not define what constitutes oppressive conduct.

The hard part of the assignment is locating a case on point in the jurisdiction that defines or provides the elements of oppressive conduct. After an extensive search, the paralegal locates only one case dealing with oppressive conduct, Karl v. Herald. In this case, a husband and wife owned a small corporation in which the husband owned 75 percent of the stock and the wife owned 25 percent. When they divorced, he fired her from her salaried position of bookkeeper, took away her company car, and refused to issue stock dividends. The company was very profitable, had a large cash surplus,and was clearly in a financial position to issue dividends. After the divorce, the husband gave himself a hefty salary increase. The court held that he had engaged in oppressive conduct in freezing his wife out of the corporation. It defined oppressive conduct as "any unfair or fraudulent act by a majority shareholder that inures to the benefit of the majority and to the detriment of the minority."

Upon finding this case, several questions run through the paralegal's mind. Is this case on point? How does one determine if a case is on point? Why does it matter?