## Facts

- Magline, Inc. was a closely held Michigan corporation; minority shareholders Miller and Thorpe owned about 41% of the shares, and majority shareholders (who also held executive offices) owned about 59% and controlled corporate operations.
- The corporation followed a long-standing policy of paying low base salaries with incentive bonuses tied to earnings for active managers, retaining remaining profits as working capital, and paying no dividends.
- Initially, principal shareholders participated in management and the incentive plan, making the no-dividend policy acceptable to them.
- In 1962, Miller suffered a serious injury and stopped active management; Thorpe resigned as vice president; both remained shareholders and directors but were excluded from management compensation and bonuses.
- Despite consistent profits and accumulated surplus, Magline continued to pay no dividends while the majority-manager shareholders received substantial bonuses.
- Minority shareholders sued seeking (1) compelled dividends for prior years and (2) recovery of allegedly excessive officer compensation.
- After a bench trial, the trial court ordered the directors to declare and pay a $75-per-share dividend for July 1, 1963 to June 30, 1968, dismissed the excessive-compensation claim as unreasonable, and retained jurisdiction to address possible dividends for July 1, 1968 to June 30, 1973.
- The corporation appealed the dividend order and retention of jurisdiction; plaintiffs cross-appealed the dismissal of the excessive-compensation claim.

## Issues

1. Whether majority shareholders and directors breached fiduciary duties and abused discretion by refusing to declare dividends over many profitable years while channeling earnings to themselves through bonuses.
2. Whether officer compensation was so excessive as to constitute a breach of duty or waste.
3. Whether the trial court could retain jurisdiction to supervise and, if necessary, order dividends for subsequent years.

## Decision

- The court affirmed the order compelling a $75-per-share dividend for the 1963–1968 period.
- The court affirmed dismissal of the excessive-compensation claim, holding the compensation was reasonable on the record.
- The court affirmed the trial court’s retention of jurisdiction to consider dividends for the later period (1968–1973).

## Legal Principles

- Directors generally have broad discretion over dividend policy, and courts ordinarily defer absent fraud, bad faith, self-dealing, or a clear abuse of discretion.
- In closely held corporations, majority shareholders and controlling directors owe duties of good faith and fair dealing to minority shareholders and may not use dividend control to deny minorities a fair return while distributing earnings to themselves as compensation.
- A court of equity may compel dividends when the refusal to declare them reflects bad faith or self-interested conduct rather than a bona fide business justification.
- Officer compensation is evaluated for reasonableness in light of performance and circumstances; large bonuses do not, without more, establish excessiveness or waste.
- Where a pattern of dividend-related misconduct is shown, a court may retain jurisdiction to provide effective relief and prevent recurrence.

## Conclusion

The court held that, although dividend decisions are usually left to board judgment, the majority’s long-term refusal to pay dividends in a profitable close corporation while majority-managers benefited from earnings through bonuses supported equitable relief compelling dividends and continued judicial supervision; however, the officers’ compensation was upheld as reasonable.


Miller v. Magline, Inc., 256 N.W.2d 761 (Mich. Ct. App. 1977)