Katzowitz v. Sidler
Court of Appeals of New York
249 N.E.2d 359 (1969)
Katzowitz, Sidler, and Lasker (plaintiff and defendants) equally owned Sulburn Holding Corp. and each was owed $2,500 by the company. Instead of repaying that debt, Sidler and Lasker proposed issuing new stock to directors at $100 per share, well below actual value, in lieu of repayment; Katzowitz objected, so the corporation repaid the $2,500 debts instead. Sidler and Lasker then called a special meeting only they attended and voted to issue 75 shares at $100 per share — just 1/18th of book value — while giving all three shareholders notice of a right to buy 25 shares each at that price. Katzowitz, having just received his $2,500 check alongside this notice, chose not to exercise his right; Sidler and Lasker each bought their 25 shares. When Sulburn dissolved, Sidler and Lasker received $18,885.52 while Katzowitz received only $3,147.59. Katzowitz sued for an equal share of the assets, minus what Sidler and Lasker paid for their new shares. The trial and appellate courts ruled he had waived his rights by not buying in.
Whether, where the issuing price for new stock in a close corporation is significantly and unjustifiably below book value, a shareholder who chooses not to purchase the new stock should nonetheless receive a proportionate share of it.