Pilat v. Broach System, Inc.

Superior Court of New Jersey, Law Division · 1969 · Corporations

260 A.2d 13 (1969)

Updated August 22, 2026

CorporationsDirectorsShareholder inspection rightsRemoval of directorsdirector removalwithout causecertificate of incorporationvested rights

Facts

Plaintiff was a stockholder, director, and vice-president of defendant corporation from its inception until 1969, and he was first removed as a director without cause before the certificate of incorporation authorized such removal. After plaintiff demanded inspection of financial statements, shareholder records, books, records of account, and minutes, defendant did not respond, and plaintiff sued. Defendant later reinstated plaintiff, amended its certificate of incorporation to authorize shareholder removal of directors without cause, and then removed him again. Plaintiff also challenged the executive committee and sought to restrain the corporation from removing assets from New Jersey to Florida.

Issue

Whether shareholders may remove a director without cause after amending the certificate of incorporation when the director had been elected before that amendment. Whether a current director is entitled to inspect the corporation's books and records regardless of motive. Whether plaintiff showed grounds to invalidate the executive committee or enjoin the corporation from conducting business in Florida.

Rule

A director may not be removed without cause unless the certificate of incorporation provided for such removal at the time of the director's election; a later amendment cannot defeat the director's existing right to complete the term absent cause. In New Jersey, a director's right to inspect corporate books and records is absolute and unqualified, unlike a shareholder's qualified right, and is not defeated by alleged hostile motive. Claims attacking an executive committee or seeking to restrain out-of-state business fail absent proof, and a New Jersey corporation may conduct business outside the state so long as it maintains the registered office and agent required by statute.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Components, Inc., a New Jersey corporation based in Newark, elected Dana Mercer to a two-year term on its board in January 2025. In October 2025, the shareholders amended the certificate of incorporation to authorize removal of directors without cause and, the same day, voted to remove Dana even though no misconduct was alleged.

Was Dana's removal effective?

Explanation. The majority held that although a corporation may amend its certificate to authorize no-cause removal, the amendment cannot impair the existing right of a director who was elected before the amendment. A director may be removed without cause only if the certificate so provided at the time of the director's election. Choice D is too broad because the court recognized that no-cause removal may be valid when previously authorized.