Bove v. Community Hotel Corporation of Newport, R.I.

Preferred stockholders in Community Hotel Corporation of Newport, R.I. (Community Hotel) (defendant) held the right to receive unpaid dividends for 24 years before any dividends could go to common stockholders. Rhode Island law let a corporation amend those dividend rights, but only with a unanimous vote of preferred stockholders — a vote Community Hotel's management couldn't obtain. Instead, management created a shell corporation and structured a merger with it in a way that would remove the preferred stockholders' dividend rights, relying on a separate Rhode Island merger statute that required approval from only two-thirds of preferred stock. Bove and other preferred stockholders (plaintiffs) sued to enjoin the merger, arguing its only real purpose was to sidestep the unanimity requirement for amending dividend rights.