Zidell v. Zidell

The Zidell family business was organized into affiliated corporations. By 1968, brothers Arnold (plaintiff) and Emery Zidell (defendant) each held 37.5 percent and Jack Rosenfeld held 25 percent; all three were directors and Emery was CEO. Because the shareholders drew salaries, no dividends were declared. In 1972 Rosenfeld sold his shares to Emery's son Jay (defendant), giving Emery and Jay majority control. After Arnold's relationship with Emery soured, Arnold was refused a raise, resigned, and demanded annual dividends. The directors then declared modest dividends for 1973 and 1974 while sharply raising salaries. Arnold sued to compel larger dividends, claiming they were unreasonably small and part of a squeeze-out; the directors cited the company's need to invest in improvements. The trial court found for Arnold and ordered additional dividends, and the directors appealed.

Whether a shareholder suing to compel a corporation to declare a larger dividend bears the burden of proving that the directors acted in bad faith in setting the dividend.