Moskowitz v. Bantrell
Facts
Filtrol was a profitable wasting-asset corporation with substantial earned surplus, much of it invested in short-term tax-exempt bonds and government securities. The plaintiff owned 25 shares and alleged that earnings had been accumulated beyond the reasonable needs of the business, that the surplus would be subject to the accumulated earnings tax, and that the directors' refusal to distribute it was arbitrary and violated fiduciary duties. Filtrol's president submitted an affidavit showing large expenditures on dividends, plant and property, and research and development during 1952-1961, declining sales, and several current or potential projects requiring substantial future capital. The plaintiff challenged both the financial presentation and the definiteness of the projected uses for the surplus.
Issue
Whether the stockholder showed facts sufficient to justify judicial compulsion of a dividend by demonstrating that Filtrol's directors fraudulently or grossly abused their discretion in withholding distributions. The appeal also raised whether the corporation's affidavit and the procedural handling of discovery and amendment precluded summary judgment.
Rule
Before a court will interfere with the judgment of a board of directors on dividend policy, fraud or gross abuse of discretion must be shown. The court acts only after a demonstration that the corporation's affairs justify a dividend as a matter of prudent business management and that withholding it is explicable only on the theory of an oppressive or fraudulent abuse of discretion.
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A minority shareholder sues in Delaware to compel a dividend, arguing that the surplus is far larger than current operating needs. Which is the best result?