Opinion of the German Reichsgericht in the Matter of S. S. v. M. E. Corp.

S. S. (plaintiff) was a significant minority shareholder of M. E. Corp. (defendant). The majority shareholders were M. W. and members of M. W.’s family. M. W. had been an officer and board member since the company’s inception. At an annual vote to ratify the management of the corporation’s affairs, S. S. voted against the resolution. However, with M. W.’s family holding the majority of the shares, the resolution passed. J. W., M. W.’s son, cast the largest share of the votes for the family group. S. S. challenged the vote in court, contending that Germany’s commercial code prohibited management from votes connected to corporate management and that M. W. essentially controlled J. W.’s shares. That would leave S. S. with a supermajority of shares to vote against the resolution. The court agreed, and M. W. and J. W. did not appeal. M. W. then called for a new vote on the question but formed a limited-liability company in the interim to hold all of the W family shares in M. E. Corp. The resolution approving the management of the corporation’s affairs passed on the strength of the shareholder interests of the limited-liability company. S. S. again challenged the vote’s validity, contending that M. W. controlled the limited-liability company. The trial court (Landgericht) again held the vote invalid, but the appellate court (Oberlandesgericht) reversed and dismissed S. S.’s complaint. S. S. appealed to the Reichsgericht. [Editor’s Note: The Reichsgericht was Germany’s supreme court from 1879 to 1945.]