Miller v. Magline, Inc.

On December 27, 1967, plaintiffs, minority shareholders, brought this action to compel the declaration and payment of dividends and to recover allegedly excessive compensation paid to named corporate officers. Trial was completed on April 29, 1970 and, in an opinion dated June 23, 1973, the chancellor concluded that a dividend should be declared, but denied the excess compensation claim, finding the compensation paid to *289 defendant officers to have been reasonable. The amended judgment, dated September 15, 1975, ordered defendant Magline’s directors to declare and pay a dividend of $75 per share for the period from July 1, 1963 to June 30, 1968, dismissed plaintiffs’ excessive compensation claim, and retained jurisdiction to determine whether dividends should be awarded for the period from July 1, 1968 to June 30, 1973. Magline has appealed from the dividend award and the chancellor’s retention of jurisdiction. Plaintiffs have taken a cross-appeal from dismissal of their excessive compensation claim.

Plaintiff Miller and defendant Law incorporated Magline. Law has served as president to the present, but Miller is no longer a corporate officer. Within a few months after Magline’s incorporation, plaintiff Thorpe joined the company as an officer and director. By 1959 defendants Schilling, Graves, Monroe, Mortenson, and See had joined the company. The board presently consists of plaintiffs Miller and Thorpe, Raymond G. Miller (plaintiff Miller’s son), and the individual defendants Law, Schilling, See, Graves and Monroe.

Plaintiffs own approximately 41% of the 4,138 shares of Magline stock issued and outstanding; defendants own the remaining 59%. 1 By virtue of their majority holdings and executive offices, defendants control all aspects of corporate activity. 2

*290 Magline has experienced considerable success in the field of commercial and defense related applications of magnesium and related light metals. Up to the time of trial Magline had consistently shown a profit on its overall operations, but it had never paid a dividend. Instead, the board has adhered to the policy adopted in 1950 by Law, Miller, and Thorpe of compensating corporate managers by means of a low base salary coupled with an incentive bonus plan based on a percentage of earnings, with the remaining profits being retained by the corporation to be used as working capital. This policy was satisfactory to all concerned so long as the principal shareholders were actively participating in management and sharing in the incentive bonus compensation plan.

In 1962, however, important changes occurred. Plaintiff Miller was seriously injured and thereafter ceased to play an active role in corporate management. In the same year, plaintiff Thorpe resigned as vice-president of Magline. Both Thorpe and Miller continued as directors and shareholders of Magline, however.

On November 10, 1962, the board adopted resolutions confirming defendants Law, Monroe, See, Schilling, and Graves in their respective offices of president and general manager, vice-president in charge of engineering, vice-president in charge of sales, secretary, and treasurer and assistant secretary. Whereas previous resolutions had provided for employment "during the fiscal year”, the 1962 resolutions provided for employment "during the fiscal year ending June 30, 1963 and until his successor be duly elected and qualify”, thereby rendering annual resolutions unnecessary. The *291 employment resolutions provided for low base salaries and fixed the incentive bonuses for Law, Monroe, See, and Graves at an aggregate of 23% of net earnings before taxes and profit-sharing. 3 Because Miller and Thorpe were no longer officers, they were excluded from the incentive bonus program.

Prior to 1962 the board met annually to vote on management compensation and to fix corporate policy for the ensuing year. Because the board authorized the formation of an executive committee to supervise corporate affairs, at the 1962 meeting, and because the employment resolutions specified open-ended terms of office, the board did not meet again until February 19, 1966, when it met at plaintiffs’ request. As a result, the employment resolutions adopted at the 1962 meeting remained in effect until February, 1966. During that time corporate earnings, and hence incentive bonuses, increased dramatically. 4 These increases stemmed primarily from Magline’s increased production under government- defense procurement contracts during the Viet Nam War years.

At the February 19, 1966, meeting the board reduced the percentages by which the incentive bonuses of Law, Monroe, See, Graves, Mortenson, *292 and Schilling were computed to an aggregate of 14-1/2% of net earnings before profit-sharing and taxes. 5 At the October 22, 1966, meeting the board adopted essentially identical compensation resolutions for the fiscal year ending June 30, 1967, with plaintiffs abstaining from voting, as at the February, 1966 meeting. The board rejected plaintiffs’ motion to declare a $10 dividend at the October, 1966 meeting, and like motions at the 1967 and 1968 board meetings were also defeated.

Law testified that the fiscal years from 1964 through 1969 were the most profitable in Mag-line’s history. In 1963 Magline had net income of $55,760 on gross sales of $2,024,901 with earned surplus of $226,620. In 1968, Magline had net income of $569,670 on gross sales of $10,429,988 with earned surplus of $2,492,156.

I

The plaintiffs’ claim to recover, for the corporation, excessive compensation allegedly paid to the individual defendants is a classic example of a shareholder’s derivative suit. See Dean v Kellogg, 294 Mich 200, 207; 292 NW 704 (1940). Such derivative suits are equitable in nature, Bachelder *293 v Brentwood Lanes, Inc, 369 Mich 155, 164; 119 NW2d 630 (1963), Dean v Kellogg, supra, Burch v Norton Hotel Co, 261 Mich 311, 314; 246 NW 131 (1933), and consequently our review is de novo on the record. Dozier v Automobile Club of Michigan, 69 Mich App 114, 123; 244 NW2d 376 (1976). Notwithstanding defendant’s contention to the contrary, a shareholder’s action to compel a dividend is heard on the equity side. Dodge v Ford Motor Co, 204 Mich 459, 500, 501; 170 NW 668 (1919), Miner v Belle Isle Ice Co, 93 Mich 97, 113, 115, 117; 53 NW 218 (1892), Hunter v Roberts, Throp & Co, 83 Mich 63, 71; 47 NW 131 (1890). Therefore, our review of the chancellor’s decree relating to the dividend claim is de novo on the record as well. Stachnik v Winkel, 394 Mich 375, 383; 230 NW2d 529 (1975).

Although our review of chancery cases is de novo, the chancellor’s factual findings will not be set aside unless they are clearly erroneous. GCR 1963, 517.1, Ford v Howard, 59 Mich App 548, 552; 229 NW2d 841 (1975). A finding is clearly erroneous "when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed”. Tuttle v Department of State Highways, 397 Mich 44, 46; 243 NW2d 244 (1976), quoting United States v United States Gypsum Co, 333 US 364, 395; 68 S Ct 525, 542; 92 L Ed 746, 766 (1948). The chancellor’s determinations based upon his findings of fact will be set aside only for abuse of discretion, and "to have an 'abuse’ in reaching such determination, the result must be so palpably and grossly violative of fact and logic that it evidences not the exercise of will but perversity of will, not the exercise of judgment but defiance thereof, not the *294 exercise of reason but rather of passion or bias”. Spalding v Spalding, 355 Mich 382, 384-385; 94 NW2d 810 (1959).

II

Plaintiffs raise three closely-related claims in their cross-appeal from dismissal of their excessive compensation claim. Plaintiffs claim that the chancellor erred in failing to find that the board breached their fiduciary duty to the stockholders and the corporation by failing to call a director’s meeting during the period from November 10, 1962 to February 19, 1966, for the purpose of reducing the incentive bonuses payable to the individual defendants, once it became apparent that Magline’s spectacular earnings during that period would result in large windfalls to the individual defendants. Plaintiffs also contend that the chancellor erred in countenancing the continuation of the incentive bonus program after 1964 because plaintiffs were excluded from both the benefits of the program and corporate management by virtue of their status as minority stockholders. They contend that the chancellor should have determined the reasonable compensation for each individual defendant and decreed their compensation in the form of fixed salaries. Further, plaintiffs contend that the burden was on defendants to establish that the compensation received by them was reasonable, and that defendants failed to carry that burden.

The chancellor concluded that "plaintiffs have not demonstrated their right to bring an action for the corporation against these officers and directors and force them to return any of the payments made to them as compensation”. Thus, the chancellor placed on plaintiffs the burden of proving that the compensation paid was unreasonable. *295 Plaintiffs contend that § 13(5) of the General Corporation Act, 6 which was in effect at the time of trial, gave defendants the burden of proving that their compensation was reasonable. The statute applies to self-dealing by directors of a corporation resulting in misappropriation of corporate assets. See, e.g., Thomas v Satfield Co, 363 Mich 111; 108 NW 2d 907 (1961), Attorney General, ex rel Commissioner of Insurance v Michigan Surety Co, 364 Mich 299, 326; 110 NW2d 677 (1961), Mahlen Land Corp v Kurtz, 355 Mich 340, 355; 94 NW2d 888 (1959). The short answer to plaintiffs’ contention that § 13(5) places on defendants the burden of proving that the compensation was reasonable is that the section has no application in this case because no contract between the corporation and its directors is here involved. We recognize, however, that this does not take into account the problem presented in cases involving closed corporations in which, as here, officers often double as directors. Accordingly, we must consider the question more closely.

In support of their contention that the burden was on defendants to prove that their compensation was reasonable, plaintiffs rely on Erdman v Yolles, 62 Mich App 594; 233 NW2d 667 (1975). In that case defendants voted themselves a raise in salary after plaintiff shareholder left the employ of the closely held corporation, and the chancellor *296 placed the burden on defendants of proving the salaries they received after plaintiff left the corporation were reasonable. Id. 596, 597-598. This Court said:

"Under the law in effect prior to the effective date of the new Business Corporation Act the trial judge’s decision in this regard was correct. Holden v Lashley-Cox Land Co, 316 Mich 478; 25 NW2d 590 (1947), McKey v Swenson, 232 Mich 505; 205 NW 583 (1925). The cases relied on by defendants for the law prior to the effective date of the new act, Garwin v Anderson, 334 Mich 287; 54 NW2d 667 (1952), Wiseman v Musgrave, 309 Mich 523; 16 NW2d 60 (1944), and Nahikian v Mattingly, 265 Mich 128; 251 NW 421 (1933), are not to the contrary but simply involve dissimilar factual situations.” Erdman v Yolles, supra, at 598-599.

In the instant case, however, it is undisputed that each director-officer abstained from voting on his own compensation at the board meetings. In Garwin v Anderson, 334 Mich 287; 54 NW2d 667 (1952), plaintiffs complained of excessive salaries paid to the corporate president and other officers and on appeal defendants argued that the burden was on plaintiffs to establish that the salaries were unreasonable, relying on Wiseman v Musgrave, 309 Mich 523; 16 NW2d 60 (1944), while plaintiffs relied on McKey v Swenson, 232 Mich 505; 205 NW 583 (1925), for the contrary proposition. The Court said:

"Reading of the 2 cases and of 2 others therein cited, namely, Nahikian v. Mattingly, 265 Mich 128 [251 NW 421 (1933)], and Miner v. Belle Isle Ice Co., 93 Mich 97 [53 NW 218] (17 LRA 412) [1919], discloses that the rule imposing the burden of proof on defendants is applicable in cases where the action of the directors in ñxing their own compensation is held void for the reason that it was accomplished by the vote of those benefíting *297 thereby. ” Garwin v Anderson, supra, 295-296. (Emphasis added.)

After observing that it had not been shown that the fixing of salaries of officers or directors in that case had been accomplished by or dependent on the vote of the individual thereby benefited, the Court quoted with approval from Nahikian:

" 'In McKey v. Swenson, 232 Mich 505 [205 NW 583 (1925)], we held action in fixing salaries wholly void and cast the burden upon the officers to give the court information upon which reasonable compensation could be fixed. Such, however, is not the case at bar, for here we do not have wholly void action but only assertion of unreasonable compensation and the burden is on plaintiff to establish the charge.’ ” Garwin v Anderson, supra, at 296.

Thus, the chancellor correctly placed the burden on plaintiffs of establishing that the compensation received by the individual defendants was excessive. Wiseman v Musgrave, supra, Luyckx v R L Aylward Coal Co, 270 Mich 468, 474; 259 NW 135 (1935), Nahikian v Mattingly, 265 Mich 128, 131; 251 NW 421 (1933), Burch v Norton Hotel Co, 261 Mich 311, 315; 246 NW 131 (1933), Erdman v Yolles, supra.

With regard to plaintiffs’ claim that defendant directors breached their fiduciary duty to the stockholders by failing to call a directors’ meeting for the purpose of reducing their incentive bonuses, the chancellor agreed that defendants had been paid "handsome” amounts. The chancellor also agreed that it would have been difficult for defendant directors to undertake an impartial, independent review of their own salaries as officers, and he was "perturbed” by defendants’ failure to address themselves to the question of execu *298 tive compensation during the period from 1962 to February, 1966, when the percentage of the incentive bonuses was reduced by half. The chancellor found that plaintiffs "had little impact in causing any change of mind on the part of the management group” 7 and that "there was concerted action on the part of management in reviewing compensation”.

Passing from consideration of the three-year hiatus between meetings, however, the chancellor observed that defendants’ conflicting interests as directors and officers of this closed corporation did not necessarily mean that "the evils of such an arrangement are such that the baby must be thrown out with the bath water”. He observed that the situation fostered "a driving desire by those who are in management and control to perform at the highest and most efficient level since they will directly benefit”, and that the incentive bonus arrangement also tended to attract capable and interested management personnel who would be encouraged by the arrangement to "ride herd” on one another to insure that each made "an adequate contribution to the well being of the corporation”.

After stating that the test to be applied was whether defendants’ compensation was reasonable, and that "reasonableness in this connection must be an area or a broad spectrum of compensation”, the chancellor concluded:

"We were impressed by the capabilities of the Mag-line management group and we are satisfied that the *299 success of the corporation is attributable in no small part to their efforts and attention to their duties. We are satisfied that they not only had a desire to further their own best interests, but also a desire to serve the best interest of the corporation.

"Magline’s compensation plan for its officer-directors was primarily that of a contingent fee, as we have previously developed. This results in the probability that if the corporation is a success, the return to the officers will be at the high end. On the other hand, this is balanced by the consideration that bad times bring low returns. In view of the participation by the plaintiffs in this same type of plan, prior to their severance of employment connections with the corporation, we are satisfied that the payments to these officers are within the outer limits of reasonable compensation.”

Entirely apart from the facts that plaintiffs voted in favor of the 1962 compensation resolutions, that under Magline’s by-laws plaintiffs could themselves have convoked the directors at any time to review the bonuses, 8 and that plaintiffs failed to introduce any resolution calling for a refund to the corporation of any alleged excess compensation, defendants’ failure to call a meeting of the directors could not constitute a breach of their fiduciary duties to the stockholders if the compensation itself was reasonable, as the chancellor found. Therefore, we proceed to consider plaintiffs’ claim that the chancellor erred in finding that it was.

Whether compensation is excessive is a question of fact, in the determination of which all the circumstances of the case should be considered. Luyckx v R L Aylward Coal Co, supra, at 474, Bachelder v Brentwood Lanes, Inc, supra, at 162. *300 In Nahikian v Mattingly, supra, at 132, the Court said:

"We may not readjust the salary without a yardstick applicable to the particular circumstances and not even then upon mere difference of opinion from that of the board of directors, but only upon concrete proof that the salary evidences wrongdoing or inexcusable oppression to the point of being fraudulent. Less than this would constitute an intolerable interference with legitimate internal corporate management.”

Although plaintiffs’ expert on the question of executive compensation testified that compensation for officers of corporations similar to Magline was considerably lower than the levels of compensation paid to the individual defendants during the period from 1964 to 1968, he expressed no opinion on the reasonableness of their compensation. Defendants’ experts, on the other hand, were both of the opinion that defendants’ compensation was reasonable, taking into account their low base salaries, their demonstrated contributions to Magline’s exceptional success, and the philosophy underlying the concept of incentive compensation. It is apparent that the chancellor found these factors persuasive in arriving at his conclusion that defendants’ compensation was reasonable. 9 Defendants stood by the corporation during the relatively lean years preceding the period from 1964 to 1968, 10 and the chancellor thought they were entitled to share in the company’s success during its good years.

*301 In Roth Office Equipment Co v Gallagher, 172 F2d 452, 456 (CA 6, 1949), the Court said, "If the principle of bonus compensation is to be recognized, it carries with it the payment of liberal compensation in good years and moderate compensation in lean years”. We agree. Further, although not conclusive on the question of reasonableness, it is significant that the Internal Revenue Service concluded, after three successive reviews from 1964 to 1968, that the levels of executive compensation for the years in question were within the range of proper business expenses. The chancellor, too, thought this factor worthy of note. 11 He also thought it significant that plaintiffs had themselves participated in the incentive bonus program when they were employed by Magline, 12 and properly so. Burch v Norton Hotel Co, supra, at 314.

Although we agree with the chancellor that "$137,000.00 in one year is a substantial amount of money to pay even to the very successful president of the very successful corporation”, this fact alone does not render the compensation paid to the individual defendants unreasonable under all of the circumstances of this case. We conclude that the chancellor’s finding of reasonableness was *302 based upon adequate consideration of those circumstances, and that his finding is supported by the evidence. Therefore we cannot say that a mistake has been committed, and we decline to disturb the chancellor’s finding. Tuttle v Department of State Highways, supra.

Ill

Plaintiffs alleged that in withholding a dividend defendants had violated the fiduciary duty which they owed, as majority stockholders and directors, to the minority stockholders, and that defendants’ refusal to declare a dividend was an arbitrary, capricious, and unwarranted abuse of their discretion. In the landmark case on court-compelled dividends for closed corporations, Dodge v Ford Motor Co, 204 Mich 459, 500; 170 NW 668; 3 ALR 413 (1919), the Court adopted the following statements:

" 'It is a well-recognized principle of law that the directors of a corporation, and they alone, have the power to declare a dividend of the earnings of the corporation, and to determine its amount. 5 Am. & Eng. Enc. Law [1st Ed.], p. 725. Courts of equity will not interfere in the management of the directors unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds, or refuse to declare a dividend when the corporation has a surplus of net profits which it can, without detriment to its business, divide among its stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud, or breach of that good faith which they are bound to exercise towards the stockholders. ’

" 'When, therefore, the directors have exercised this discretion and refused to declare a dividend, there will be no interference by the courts with their decision, *303 unless they are guilty of a wilful abuse of their discretionary powers, or of bad faith or of a neglect of duty. It requires a very strong case to induce a court of equity to order the directors to declare a dividend, inasmuch as equity has no jurisdiction, unless fraud or a breach of trust is involved. There have been many attempts to sustain such a suit, yet, although the court do not disclaim jurisdiction, they have quite uniformly refused to interfere. The discretion of the directors will not be interfered with by the courts, unless there has been bad faith, wilful neglect, or abuse of discretion. ’ ” (Emphasis added.)

Defendant contends that under the business judgment rule a court may not compel a dividend in the absence of clear and convincing proof of fraud, conspiracy, waste, or gross abuse of discretion by the board of directors. In so arguing, defendant carefully elides the statement in the rules above quoted that a court may compel a dividend when the board’s refusal to declare one would constitute a "breach of that good faith which they are bound to exercise towards the stockholders”. Dodge v Ford Motor Co, supra, at 500, quoting Hunter v Roberts, Throp & Co, 83 Mich 63, 71; 47 NW 131 (1890). Breach of this fiduciary duty amounts to a breach of trust, and has consistently been recognized in Michigan as a ground for court intervention. Dodge v Ford Motor Co, supra, at 500, see Reed v Burton, 344 Mich 126, 130, 131; 73 NW2d 333 (1955), Barrows v J N Fauver Co, 280 Mich 553, 558, 559; 274 NW 325 (1937), Wagner Electric Corp v Hydraulic Brake Co, 269 Mich 560, 566, 567; 257 NW 884 (1934), Thompson v Walker, 253 Mich 126, 134-135; 234 NW 144 (1931). The courts have also been sensitive to the "special problems inherent in the close corporation, and have applied corporate doctrine accordingly”. Darvin v Belmont Industries, Inc, 40 *304 Mich App 672, 677; 199 NW2d 542, 64 ALR3d 349 (1972). In Thompson v Walker, supra, at 135, the Court said:

"It is especially true, where one man or family controls and dominates a corporation, that he, or they, must act in the utmost good faith in the control and management of. the corporation as to minority stockholders." 13

See 2 O’Neal, Closed Corporations (2d ed), § 8.07, p 44, § 8.08, pp 59-60.

The chancellor concluded that plaintiffs were entitled to a dividend:

"It is our opinion that under all of the circumstances of the case, that the directors of the management group were placed in the impossible situation of trying to give an impartial answer to the determination as to whether dividends should be granted. They already were taking a profit distribution via a percentile of profits before taxes. Therefore, we deem it an untenable position to argue that non payment of dividends is justified on the basis that such a concept of profit distribution would imperil the continued well being of the corporation. If such retention of profits were indicated they should have been more diligent in seeing that distributions based upon percentage of profits also should be curtailed.

"We are of the opinion that a dividend should be declared for the years up to the time of the trial of this cause based upon the accumulated net undivided profits. To the extent that the management group, as directors, has adopted a non-dividend policy, we are of the opinion that it has defeated one of the major *305 purposes of a profit corporation, that is, to accumulate profits and divide them amongst the corporate owners when that is reasonable and proper. Under the circumstances here, their participating in a distribution to them of those profits and a squirreling away of the balance to meet future needs is, in our opinion, inequitable in not giving consideration properly to the needs and requirements of all of the stockholders of the corporation.”

It is apparent that the chancellor found for plaintiffs on the basis of their breach of fiduciary duty theory. Accordingly, the question presented is whether the chancellor’s conclusion that defendants’ actions constituted a breach of their fiduciary duties was clearly erroneous.

Defendants contend that a dividend is inappropriate in light of the evidence that the corporation had working capital shortages, particularly in view of the provisions of Magline’s by-laws with regard to the declaration of dividends. 14

" 'To authorize the court to intervene, and decree a dividend, it ought, in the first place, to appear clearly that there are surplus profits to divide, and that such profits can be separated from the necessary working capital, for the purpose of a dividend, without serious detriment to the interest of the stockholders and the *306 prosperity of the business of the corporation.’ ” Hunter v Roberts, Throp & Co, supra, at 65.

Defendants’ experts testified that Magline had experienced working capital shortages, 15 but this testimony was based on the tests used by the Internal Revenue Service to determine whether a corporation is subject to the Federal accumulated earnings tax. 16 We agree with the chancellor that, although such testimony should be considered in determining the propriety of the directors’ decision not to declare a dividend, it cannot be conclusive on the question of whether a dividend ought to be declared. The tax rules establishing a perimeter for accumulated earnings, which the company may not exceed without being subject to harsh penalties, cannot control when the question is whether the refusal to declare a dividend out of such surplus amounts to a breach of the directors’ fiduciary duties to the stockholders.

Plaintiffs’ expert testified that Magline had "a plethora of working capital, an overabundance of working capital”, 17 and the chancellor correctly *307 found that Magline has used "very little borrowed capital”. 18 The chancellor’s finding that defendants’ admitted nondividend policy defeated one of the major purposes of a profit corporation, the accumulation and distribution of profits to corporate owners, 19 and his conclusion that, in view of the handsome distributions to defendants under the incentive bonus plan, their argument that a dividend would imperil the corporation was untenable, are supported by the record. Such findings justified the chancellor’s interference with the discretion entrusted to the directors under the by-laws and MCLA 450.22; MSA 21.22, in effect at the time of trial. See Dodge v Ford Motor Co, supra, at 507. The company’s by-laws cannot be used as a shield behind which breaches of the directors’ fiduciary duty to the stockholders can be carried on with impunity. Our review of the record satisfies us that a dividend is not only "possible as a business proposition”, but will also be made out of a "plain and abundant surplus”. 20 Barrows v J N Fauver Co, supra, at 562.

Defendant contends that a dividend should not have been ordered because there was evidence that *308 Magline might be subject to government contract renegotiation liability, 21 and because of Magline’s need for plant and product diversification. Clearly, the directors have discretion to reserve funds to meet "contingencies, both present and prospective”, Dodge v Ford Motor Co, supra, at 502, but the prospect of contingent renegotiation liability did not preclude a dividend, so long as that factor was taken into consideration, as it was here, 22 in arriving at a determination that a dividend ought to be paid. Defendants Law and Graves testified that no plant acquisition was contemplated nor in progress, and the record is silent as to any concrete plans for plant improvement or product diversification. 23 The situation at bar is thus unlike that in Barrows v J N Fauver Co, supra, and Dodge v Ford Motor Co, supra, in which defendants had formally adopted plans for plant construction. Moreover, in the Dodge case the Court assumed that the expansion policy was in the best interest of the company and its shareholders, but concluded that it did not justify a withholding of dividends. Id. 508.

The chancellor noted that "Testimony was given to the fact that the plant, as used by the corporation, was becoming outmoded, outdated and requiring extensive renovation”, but he concluded that *309 "The arguments that the defense presents as justifying a policy of not declaring dividends in many respects undermines any reasonable expectation that the present book value of the stock can be or ever will be realized in the future”. He we