In Dеcember, 1951, Dr. Louis É. Wolfson agreed to purchase land in Norwood for $350,000, with an initial cash payment of $50,000 and a mortgage note of $300,000 payable in thirty-three months. Dr. Wolfson offered a quarter interest each in the land to Mr. Paul T. Smith, Mr. Abraham Zimble, and William H. Burke. Each paid to Dr. Wolfson $12,500, one quarter of the initial payment. Mr. Smith, an attorney, organized the defendant corporation (Atlantic) in 1951 to operate the real estate. Each of the fоur subscribers received twenty-five shares of stock. Mr. Smith included, both in the corporation’s articles of organization and in its by-laws, a provision reading, “No election, appointment or resolution by the Stockholders and no election, appointment, resolution, purchase, sale, lease, contract, contribution, compensation, proceeding or act by the Board of Directors or by any officer or officеrs shall be valid or binding upon the corporation until effected, passed, approved or ratified by an affirmative vote of eighty (80 %) per cent of the capital stock issued outstanding and entitled to vote.” This provision (hereafter referred to as the 80 % provision) was included at Dr. Wolf-son’s request and had the effect of giving to any one of the four original shareholders a veto in corporate decisions.
Atlantic purchаsed the Norwood land. Some of the land and other assets were sold for about $220,000. Atlantic retained twenty-eight acres on which stood about twenty old brick or wood mill-type structures, which required expensive and constant repairs. After the first year, Atlantic became profitable and showed a profit every year prior to 1969, ranging from a low of $7,683 in 1953 to a high of $44,358 in 1954. The mortgage was paid by 1958 and Atlantic has incurred no long-term debt thereafter. Salaries *203 of about $25,000 were paid only in 1959 and 1960. Dividends in the total amount of $10,000 each were paid in 1964 and 1970. By 1961, Atlantic had about $172,000 in retained earnings, more than half in cash.
For various reasons, which need not be stated in detail, disagreements and ill will soon arose between Dr. Wolfson, on the one hand, and the other stockholders as a group. 3 Dr. Wolfson wished to see Atlantic’s earnings devoted to repairs and possibly some improvements in its existing buildings аnd adjacent facilities. The other stockholders desired the declaration of dividends. Dr. Wolfson fairly steadily refused to vote for any dividends. Although it was pointed out to him that failure to declare dividends might result in the imposition by the Internal Revenue Service of a penalty under the Internal Revenue Code, I.R.C. § 531 et seq. (relating to unreasonable accumulation of corporate earnings and profits), Dr. Wolfson persisted in his refusal to deсlare dividends. The other shareholders did agree over the years to making at least the most urgent repairs to Atlantic’s buildings, but did not agree to make all repairs and improvements which were recommended in a 1962 report by an engineering firm retained by Atlantic to make a complete estimate of all repairs and improvements which might be beneficial.
The fears of an Internal Revenue Service assessment of a penalty tax were soon realized. Penalty assessments were made in 1962, 1963, and 1964. These were settled by Dr. Wolfson for $11,767.71 in taxes and interest. Despite this settlement, Dr. Wolfson continued his opposition to declaring dividends. The record does not indicate that he developed any specific and definitive schedule or plan for a series of necessary or desirable repairs and improvements to Atlantic’s properties. At least none was proposed which
*204
would have had a reasonable chance of satisfying the Internal Revenue Service that expenditures for such repairs and improvements constituted “reasonable needs of the business,” I.R.C. § 534(c), a term which includes (see I.R.C. § 537) “the reasonably anticipated needs of the business.” Predictably, despite further warnings by Dr. Wolfson’s shareholder colleagues, the Internal Revenue Service assessed further penalty tаxes for the years 1965, 1966, 1967, and 1968. These taxes were upheld by the United States Tax Court in
Atlantic Properties, Inc.
v.
Commissioner,
On January 30, 1967, the shareholders, other than Dr. Wolfson, initiated this proceeding in the Superior Court, later supplemented to reflect developments after the original complaint. The plaintiffs sought a court determination of the dividends to be paid by Atlantic, the removal of Dr. Wolfson as a director, and an order that Atlantic be reimbursed by him for the penalty taxes assessed against it and related expenses. The case was tried before a judge of the Superior Court (jury waived) in September and October, 1979.
The trial judge made findings (but in more detail) of essentially the facts outlined above and concluded that Dr. “Wolfson’s obstinate refusal to vote in favor of . . . dividends was . . . caused more by his dislike for other stockholders and his desire to avoid additional tax payments than ... by any genuine desire to undertake a program for improving . . . [Atlantic] property.” She also determined that Dr. Wolfson was liable to Atlantic for taxes and interest *205 amounting to “$11,767.11 plus interest from the commencement of this action, plus $35,646.14 plus interest from August 11, 1975,” the date of the First Circuit decision affirming the second penalty tax assessment. The latter amount includes an attorney’s fee of $7,500 in the Federal tax cases. She also ordered the directors of Atlantic to declare “a reasonable dividend at the earliest practical date and reasonable dividends annually thereafter consistent with good business practice.” In addition, the trial judge directed that jurisdiction of the case be retained in the Superior Court “for a period of five years to [ejnsure compliance.” Judgment was entered pursuant to the trial judge’s order. After the entry of judgment, Dr. Wolfson and Atlantic filed a motion for a new trial and to amend the judge’s findings. This motion, after hearing, was denied, and Dr. Wolfson and Atlantic claimed an appeal from the judgment and the former from the denial of the motion. The plaintiffs (see note 1, supra) requested payment of their attorneys’ fees in this proceeding and filed supporting affidavits. The motion was denied, and the plaintiffs appealed.
1. The trial judge, in deciding that Dr. Wolfson had committed a breach of his fiduciary duty to other stockholders, relied greatly on broad language in
Donahue
v.
Rodd Electrotype Co.,
In the
Donahue
case,
It does not appear to be argued that this 80 % provision is not authorized by G. L. c. 156B (inserted by St. 1964, c. 723, § 1). See especially § 8(a). See also
Seibert
v.
Miltion Bradley Co.,
The decided cases in Massachusetts do little to answer this question. The most pertinent guidance is probably found in the
Wilkes
case,
2. With respect to the past damage to Atlantic caused by Dr. Wolfson’s refusal to vote in favor of any dividends, the trial judge was justified in finding that his conduct went beyond what was reasonable. The other stockholders shared to some extent responsibility for what occurred by failing to accept Dr. Wolfson’s proposals with much sympathy, but the inаction on dividends seems the principal cause of the tax penalties. Dr. Wolfson had been warned of the dangers of an assessment under the Internal Revenue Code, I.R.C. § 531 et seq. He had refused to vote dividends in any amount adequate to minimize that danger and had failed to bring forward, within the relevant taxable years, a convincing, definitive program of appropriate improvements which could withstand scrutiny by the Internal Revenue Service. Whatever may have been the reason for Dr. Wolfson’s refusal to declare dividends (and even if in any particular year he may have gained slight, if any, tax advantage from withholding dividends) we think that he recklessly ran serious and unjustified risks of precisely the penalty taxes eventually assessed, risks which were inconsistent with any reasonable interpretation of a duty of “utmost good faith and loyalty.” The trial judge (despite the fact that the other shareholders helped to create the voting deadlock and despite the novelty of the situation) was justified in charging Dr. Wolfson with the out-of-pocket expenditure incurred by Atlantic for the penalty taxes and related counsel fees of the tax cases. 10
*210
3. The trial judge’s order to the directors of Atlantic, “to declare a reasonable dividend at the earliest practical date and reasonable dividends annually thеreafter,” presents difficulties. It may well not be a precise, clear, and unequivocal command which (without further explanation) would justify enforcement by civil contempt proceedings. See
United States Time Corp.
v.
G.E.M. of Boston, Inc.
The somewhat ambiguous injunctive relief is made less significant by the trial judge’s reservation of jurisdiction in the Superior Court, a provision which contemplates later judicial supervision. We think that such supervision should be provided now upon an expanded record. The present record does not disclose Atlantic’s present financial condition or what, if anything, it has done (since the judgment under review) by way of expenditures for repairs and improvements of its properties and in respect of dividends and salaries. The judgment, of course, necessarily disregards the general judicial reluctance to interfere with a corporation’s dividend policy ordinarily based upon the business judgment of its directors. See
Crocker v. Waltham Watch Co.,
Although the reservation of jurisdiction is aрpropriate in this case (see
Nassif
v.
Boston & Me. R.R.,
4. The plaintiff shareholders requested an allowance for counsel fees incurred by them in accomplishing the reсovery by Atlantic from Dr. Wolfson of the amounts to be paid by him. The trial judge did not state her reasons for denying the motion for such fees. Whether to grant such an allowance was within her sound discretion. See
Wilson
v.
Jennings,
5.. The judgment is affirmed so far as it (par. 1) orders payments into Atlantic’s treasury by Dr. Wolfson. Paragraph 2 of the judgment is to be modified in a manner consistent with part 3 of this opinion. The trial judge’s denial of the plaintiff’s motion to be allowed counsel fees is affirmed. Costs of this appeal are to be paid from the assets of Atlantic.
So ordered.
Notes
At least one cause of ill will on Dr. Wolfson’s part may have been the refusal of the other shareholders to consent to his transferring his shares in Atlantic to the Louis E. Wolfson Foundation, a charitable foundation created by Dr. Wolfson.
Mr. Justice Wilkins (concurring at 604) expressed agreement “with much of what the” majority opinion said in favor of granting relief. He declined, however, to “join in any implication” that certain statements in the opinion applied “to all operations of ... [a close] corporation as they affect minority stockholders.”
The court said (at 850-852) that it was “concerned that [the] untempered application of the strict good faith stаndard . . . will result in the imposition of limitations on legitimate action by the controlling group in a close corporation which will unduly hamper its effectiveness .... The majority . . . have certain rights to what has been termed ‘selfish ownership’ in the corporation which should be balanced against the concept of their fiduciary obligation to the minority .... [W]hen minority stockholders . . . bring suit . . . alleging a breach of the strict good faith duty . . . we must carefully analyze the action taken by the controlling stockholders in the individual case. It must be asked whether the controlling group can demonstrate a legitimate business purpose for its action .... [T]he controlling group in a close corporation must have some room to maneuver in establishing the business policy of the corporation. It must have a large measure of discretion, for example, in declaring or withholding dividends” (emphasis supplied) and in certain other matters. “When an asserted business purpose ... is advanced by the majority, however, ... it is open to minority stockholders to demonstrate that the . . . objective could have been achieved through an alternative course . . . less harmful to the minority’s interest.”
The majority shareholders, in the event of a deadlock, at least may seek dissolution of the corporation if forty percent of the voting power can be mustered, whereas a single stockholder with only twenty-five percent of the stock may not do so. See G. L. c. 156B, § 99(b), as amended by St. 1969, c. 392, § 23.
Seе, e.g., Hosmer, New Business Corporation Law, 1964 Ann. Survey Mass. Law §§ 1.1-1.12; Casey, The New Business Corporation Law, 50 Mass. L.Q. 201 (1965); and Boston Bar Assn., Summary of Principal Changes Made by . . . Chapter 156B (1964), reprinted as an appendix in Mass. Gen. Laws Ann., at 429.
Dr. Wolfson himself had discovered the business opportunity which led to the formation of Atlantic, had made the initial $50,000 payment which made possible the Norwood land purchase, and had given the other shareholders an opportunity tо share with him in what looked like a prob *208 ably profitable enterprise. It was reasonably foreseeable that there might be differences of opinion between Dr. Wolfson, a man with substantial income likely to be in a high income tax bracket, and less affluent shareholders on such matters of policy as dividend declarations, salaries, and investment in improvements in the property. The other shareholders, two of whom were attorneys, should have known that it was as open to Dr. Wolfson reasonably to exercise the veto provided to him by the 80 % provision in favor of a policy of reinvestment of earnings in Atlantic’s properties, which would probably avoid taxes and increase the value of the corporate assets, as it was for them (possessed of the same veto) to use reasonably their voting power in favor of a more generous dividend and salary policy.
The duties and quasi fiduciary responsibilities of minority shareholders who find themselves in a position to control corporate action are discussed helpfully in Hetherington, The Minority’s Duty of Loyalty in Close Corporations, 1972 Duke L.J. 921. The author recognizes (at 944) that, in disputes concerning the wisdom of a particular course of corporate action, the majority (or the ad hoc controlling minority) shareholder may be еntitled to follow the course he or it thinks best.
The author concludes (at 946) with the general view: “In spite of the . . . imprecision of such criteria for evaluating commercial behavior as good faith, commercial reasonableness, and unconscionability, the courts have moved toward imposing minimum requirements of fair dealing in nonfiduciary business situations. The similarly imprecise concept of fiduciary responsibility, at least as apрlied to majority shareholders . . . has clearly promoted fair dealing within business enterprises. The majority may not exercise their corporate powers in a manner which is clearly intended to be and is in fact inimical to the corporate interest, or which is intended to deprive the minority of its pro rata share of the present or future gains accruing to the enterprise. A minority shareholder whose *209 conduct is controlling on a particular issue should be bound by no different standard.”
We do not now suggest that the standard of “utmost good faith and loyalty” may require some relaxation when applied to a minority ad hoc controlling interest, created by some device, similar to the 80 % provision, designed in part to protect the selfish interests of a minority shareholder. This seems to us a difficult area of the law best developed on a case by case basis. See note 4, supra.