Mountain Manor Realty, Inc. v. Buccheri

Mountain Manor, Inc. (MMI) operated an alcoholism-rehabilitation facility on property owned by Mountain Manor Realty, Inc. (Realty) (plaintiff). Realty was controlled by John Conway, who also owned 22 shares of MMI. MMI’s remaining shares were owned by Gordon Leatherman (22 shares) and Charles Roby (12 shares). A shareholders agreement gave MMI a right of first refusal before Roby could sell his shares. Conway, Leatherman, and Roby were also MMI’s directors. Leatherman and Roby sold their shares to Jean Buccheri (defendant) and resigned as directors. Conway called a shareholders meeting to challenge the sale of Roby’s shares because Roby did not offer them to MMI first. On the day before the meeting, without notice to Leatherman, Roby, or Buccheri, Conway also convened a special meeting of the board of directors to which he invited Margaret Faulstich and William Widman. There, as MMI’s sole remaining director, Conway appointed Faulstich and Widman to fill the board vacancies created by the resignations. Conway then presented an offer by Realty to purchase 13 shares of MMI with the price to be paid in the form of a credit against a rent arrearage MMI owed to Realty. The new board issued the shares to Realty. At the stockholders meeting, Conway refused to recognize Roby’s sale and then disclosed what had transpired at the board meeting. Purporting to vote 35 shares (his 22 and Realty’s 13), Conway nominated himself, Faulstich, and Widman as directors. Buccheri’s attorney disputed the stock sale to Realty and nominated a different slate of directors. The vote was either 35-34 in favor of Conway’s slate or 34-22 in favor of Buccheri’s, depending on whether Realty’s shares were valid. Conway then sought a declaratory judgment that (1) the sale of Roby’s shares was invalid, (2) the Realty shares were valid, and (3) MMI’s directors were Conway, Faulstich, and Widman. The trial court held that Roby’s sale violated the shareholders agreement and was invalid. The court also held that the issuance of the Realty shares was invalid and that Conway’s slate did not comprise the board of directors because Conway was not entitled to unilaterally transact the corporation’s business and because he acted without regard to the upcoming shareholders meeting in appointing new directors. Conway appealed the ruling invalidating the Realty shares and his slate of directors.