Miller v. Magline, Inc.

Raymond Miller and John Thorpe (the minority shareholders) (plaintiffs) collectively owned approximately 41 percent of Magline, Inc. (Magline) (defendant). Magline was involved in commercial and government applications of magnesium and other light metals and had numerous government contracts. Magline had a longstanding policy of paying its corporate managers a low base salary plus generous bonuses based on corporate earnings. Magline was consistently profitable but had never paid a dividend to shareholders. Rather, after bonuses were paid, remaining profits were retained by the corporation as working capital. Magline’s bylaws provided that the directors were not required to declare dividends if, in their judgment, the corporation’s net profits should be retained for use as working capital. Magline’s board adopted resolutions confirming the then-current officers in their roles and indefinitely providing for their base salaries and incentive bonuses. The minority shareholders were excluded from the compensation program because they were not active in the corporation’s management at the time. The minority shareholders filed suit against Magline and its majority shareholders and directors to force the payment of dividends from Magline’s retained profits. The minority shareholders argued that by refusing to pay dividends, the majority shareholders and directors had breached fiduciary duties they owed to the minority shareholders. The trial court ordered Magline’s directors to declare and pay a dividend, and Magline appealed.