## Facts

- Madison Plaza Homes, Inc. (MPH) was a closely held real-estate corporation that owned several rental properties.
- Plaintiffs James J. Giacopelli and Doris J. Giacopelli owned 25% of MPH’s stock; defendant Dino Guiducci owned the remaining 75%.
- Giacopelli and Guiducci were MPH’s sole directors.
- MPH’s bylaws required unanimous consent of both directors for corporate action, including declaring dividends.
- MPH accumulated substantial retained earnings; by December 31, 2005, it had approximately $1,886,115 in earnings.
- No dividends were declared after 2001, even though Giacopelli requested distributions.
- MPH was treated as a pass-through entity for tax purposes, causing the Giacopellis to incur personal income-tax liability attributable to corporate profits even when no cash distributions were made.
- The Giacopellis filed direct and derivative claims against Guiducci and MPH (complaint dated June 17, 2005), seeking, among other relief, an order compelling distribution of MPH’s retained earnings based on an alleged bad-faith refusal to declare dividends.
- Guiducci asserted a business reason for retaining earnings: building capital to purchase another rental property and expand MPH’s business.
- The Giacopellis moved for partial summary judgment but did not submit evidentiary proof establishing that Guiducci’s refusal to consent to dividends was in bad faith.

## Issues

1. Whether, on a motion for partial summary judgment, the court should compel MPH to distribute retained earnings as dividends based on Guiducci’s refusal to consent.
2. Whether plaintiffs made a prima facie showing, with admissible evidence, that Guiducci acted in bad faith or abused his discretion in withholding dividends.

## Decision

- The court denied plaintiffs’ motion for partial summary judgment seeking to compel a distribution of retained earnings.
- The court held that plaintiffs did not make the required prima facie showing that Guiducci’s refusal to declare dividends was in bad faith or an abuse of discretion.
- The court found that Guiducci’s stated plan to retain earnings for future property acquisition and business growth raised, at minimum, factual questions inconsistent with summary judgment.
- The court also noted shortcomings in plaintiffs’ evidentiary submissions (including affidavit defects), which weakened their showing on summary judgment.

## Legal Principles

- Dividend declarations are primarily a matter for the board of directors; judicial intervention is limited.
- A court will not interfere with a decision to withhold dividends absent clear evidence of bad faith or an abuse of discretion by directors.
- On summary judgment, the movant must present evidence in admissible form establishing entitlement to judgment as a matter of law; conclusory allegations are insufficient.
- In a closely held corporation, a minority shareholder’s tax liability arising from pass-through treatment, standing alone, does not establish bad faith or require a court-ordered dividend when directors offer a non-pretextual business reason for retaining earnings.

## Conclusion

Because the Giacopellis did not support their partial summary-judgment motion with admissible proof that Guiducci’s refusal to consent to dividends was in bad faith or an abuse of discretion—and because Guiducci offered a business justification for retaining earnings—the court declined to compel a distribution of MPH’s retained earnings and left the dispute for resolution with factual development.


Giacopelli v. Guiducci, 2007 N.Y. Misc. LEXIS 3859 (2007)