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Feldman v. Yidl Trust

Court of Chancery of Delaware

March 5, 2018

Benjamin Feldman
v.
YIDL Trust

          Submitted: February 28, 2018

          Kelly A. Green, Esquire Smith, Katzenstein & Jenkins LLP.

          Howard and Roberta Feldman, pro se Trustees for the YIDL Trust.

          Andre G. Bouchard Chancellor.

         Dear Counsel and Mr. and Mrs. Feldman:

         This letter constitutes the court's decision on petitioner Benjamin Feldman's motion for summary judgment under Court of Chancery Rule 56 for dissolution of Royston, Inc. ("Royston" or the "Company") under 8 Del. C. § 273.[1] For the reasons explained below, I grant the motion and appoint a receiver to dissolve the Company.

          I. Background[2]

         Royston is a Delaware corporation that was formed on August 7, 1995, at the request of Andrew Feldman, the son of Howard and Roberta Feldman.[3] The Company's only asset is a boat named M/V Nervous Wreck (the "Boat").[4] On March 15, 2012, after Andrew's death, the YIDL Trust (the "Trust") was formed and became the record owner of 1, 000 shares of stock in Royston, representing 100% of its outstanding stock.[5] Howard and Roberta are Benjamin's grandparents and the trustees of the Trust.[6]

         On January 6, 2016, the Trust transferred 500 Royston shares, representing 50% of its outstanding stock, to Benjamin.[7] Minutes of a January 6, 2016 meeting of Royston's stockholders and its board of directors reflect that the Trust transferred these shares to Benjamin in consideration of various expenses Benjamin had incurred in connection with the Boat, [8] which Benjamin asserts totaled $45, 011.09.[9]The Trust retained the remaining 50% of the Company's stock.[10]

         Howard and Benjamin are Royston's only directors and officers.[11] After January 2016, Benjamin's relationship with Howard and Roberta deteriorated, as they have disagreed about the proper use of the Boat and the allocation of costs and expenses associated with ownership and maintenance of the Boat.[12]

         On April 4, 2017, Benjamin filed a petition under 8 Del. C. § 273 to dissolve Royston and to appoint himself as a receiver to administer and wind up the affairs of the Company.[13] On June 20, 2017, the Trust responded to the petition and asserted that "Howard, not Benjamin, be appointed as receiver of Royston should the parties be unable to agree to a plan of dissolution."[14]

         On October 27, 2017, before any briefing or argument, the Trust's counsel filed a motion to withdraw, which the court granted on December 8, 2017.[15] The Trust has since proceeded in this action pro se.

         On December 29, 2017, Benjamin filed a motion for summary judgment for dissolution of Royston.[16] In a supporting affidavit, Benjamin attests that he and the Trust "have been unable to come to an agreement regarding the dissolution of Royston, Inc. and the disposal of [the Boat]."[17] The motion requests the appointment of a Delaware attorney (Rebecca L. Butcher, Esq. of Landis Rath & Cobb LLP) as an independent receiver to oversee the dissolution of the Company, including the sale of the Boat, and proposes that the receiver use the services of Jeffrey Pielet, of J.P. Marine Consultants, Inc., to prepare the Boat for sale and to work with a local broker to sell the Boat.[18] The motion also "requests that only costs incurred for capital improvements and repairs to the Boat be reimbursed."[19]

         On January 17, 2018, Howard filed a letter on behalf of the Trust opposing the motion for summary judgment.[20] In its response, the Trust does not dispute that Benjamin and the Trust have been unable to agree on how to discontinue Royston or to dispose of the Boat. The Trust contends, however, that "there is a dispute about who are the true shareholders of . . . Royston [Inc.]."[21] The Trust further contends that, "even if the court finds that Benjamin is a rightful shareholder, the motion should be denied because there is a dispute over the costs and expenses of the parties relative to any proposed distribution."[22]

         II. Analysis

         To succeed on a motion for summary judgment, the movant "must establish that no genuine issue of law or of fact exists and that he is entitled to judgment as a matter of law."[23] In determining whether this burden is met, the court must view the facts in the light most favorable to the non-moving party.[24] I am mindful of the Trust's pro se status and thus interpret its filings leniently.[25]

         Section 273 of the Delaware General Corporation Law establishes a mechanism for the dissolution of a corporation comprised of two 50% stockholders:

(a) If the stockholders of a corporation of this State, having only 2 stockholders each of which own 50% of the stock therein, shall be engaged in the prosecution of a joint venture and if such stockholders shall be unable to agree upon the desirability of discontinuing such joint venture and disposing of the assets used in such venture, either stockholder may, unless otherwise provided in the certificate of incorporation of the corporation or in a written agreement between the stockholders, file with the Court of Chancery a petition stating that it desires to discontinue such joint venture and to dispose of the assets used in such venture in accordance with a plan to be agreed upon by both stockholders or that, if no such plan shall be agreed upon by both stockholders, the corporation be dissolved.

Unless both stockholders file with the court an agreed-upon plan of dissolution within three months of the petition and that plan is executed within a year, "the Court of Chancery may dissolve such corporation and may by appointment of 1 or more trustees or receivers with all the powers and title of a trustee or receiver appointed under § 279 of this title, administer and wind up its affairs."[26]

         "Section 273 essentially sets forth three pre-requisites for a judicial order of dissolution: 1) the corporation must have two 50% stockholders, 2) those stockholders must be engaged in a joint venture, and 3) they must be unable to agree upon whether to discontinue the business or how to dispose of its assets."[27]

         "The purpose of the statute is to afford relief where the corporation's two equal shareholders are deadlocked and cannot agree upon whether the joint venture should be continued and how the corporation's assets should be disposed of."[28]"[W]hile Section 273 recognizes a power in this court to deny a petition that satisfies its minimum standards, such power should be sparingly exercised."[29] "Once the requirements of § 273 are met, the exercise of such discretion is limited to a determination of whether or not a bona fide inability to agree exists between the two shareholders."[30]

         In my opinion, the prerequisites for a judicial order of dissolution under Section 273 have been met here. Benjamin and the Trust indisputably have been engaged in a joint venture (owning the Boat) since January 2016 and, as noted above, there is no dispute that they have been unable to agree as to the continued operation of the Company or how to dispose of its sole asset. Although the Trust disputes Benjamin's ownership of 50% of Royston, I find for the reasons explained below that there are no genuine issues of fact as to his ownership.

         In its opposition letter, the Trust argues that Benjamin "should not be recognized as a shareholder" because he "operated with premedi[t]ation in deception with the intent to defraud two senior citizens."[31] More specifically, the Trust contends that, in order to inherit a slip at the yacht club where the Company keeps the Boat, "Benjamin tricked [Howard and Roberta] [in]to signing over half of the corporation, " but then, "within 10 months of receiving the shares, he demanded that we sell the boat and . . . give him half of the proceeds."[32]

         It is apparent from the Trust's submissions that Howard and Roberta feel betrayed by their grandson's actions with regard to the Boat. The problem with the Trust's position, however, is that there is no genuine dispute of fact concerning Benjamin's ownership of 50% of the Company that would warrant denial of his motion for summary judgment.

         To start, the Trust specifically admitted in its answer while represented by counsel that Benjamin is a 50% stockholder of Royston:

• "Respondent [the Trust] admits that it is a 50% stockholder of Royston and that Benjamin holds the other 50% ...

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