Baron v. Allied Artists Pictures Corporation
Delaware Court of Chancery
337 A.2d 653 (Del. Ch. 1975)
Allied Artists Pictures (defendant), financially struggling since television's rise, stopped paying preferred dividends in 1963; after six missed quarters, preferred shareholders gained the contractual right to elect a majority of the board, which they continued to exercise. Allied's finances fluctuated between strong and weak years, and it also operated under an IRS agreement barring dividend payments without IRS consent while it repaid a tax deficiency in installments. Shareholder Baron (plaintiff) sued, arguing that in at least one profitable year Allied had enough funds to pay the dividend arrearage and improperly failed to do so, thereby wrongly letting preferred shareholders keep electing the board majority; Allied moved for summary judgment.
Whether, absent a showing of fraud or gross abuse of discretion, a court will interfere with a board's determination as to when and in what amounts a corporation prudently distributes its assets by way of dividends.