## Facts

- S. S. (plaintiff) was a significant minority shareholder of M. E. Corp. (defendant).
- The majority shareholders were M. W. and members of M. W.’s family. M. W. had been an officer and board member since the company’s inception.
- At an annual meeting, shareholders voted on a resolution ratifying the management of the corporation’s affairs. S. S. voted against ratification, but the resolution passed because the W family held a majority of shares.
- J. W., M. W.’s son, cast the largest share of votes within the W family group.
- S. S. brought a court challenge to the first ratification resolution, arguing that German commercial law barred management from voting on matters connected to management and that M. W. effectively controlled J. W.’s shares, making those votes improper.
- The court agreed with S. S. on the first challenge; M. W. and J. W. did not appeal.
- M. W. then called for a new vote on ratification but, before that vote, formed a limited-liability company (GmbH) to hold all W family shares in M. E. Corp.
- At the new meeting, the ratification resolution passed based on votes cast through the GmbH as shareholder.
- S. S. again challenged the resolution, contending that M. W. controlled the GmbH and thus had again caused disqualified votes to be cast in favor of ratifying his own management.
- The trial court (Landgericht) held the second ratification vote invalid; the appellate court (Oberlandesgericht) reversed and dismissed S. S.’s complaint; S. S. sought review in the Reichsgericht.

## Issues

1. Does the statutory disqualification of conflicted management votes on ratification apply when the shares are voted through a separate legal entity (a GmbH) that is controlled by the conflicted officer/director?
2. May a shareholder bring an action to set aside a shareholder resolution without showing a special, individualized legal interest beyond shareholder status and the claimed illegality?
3. Under what circumstances can such a challenge be rejected as an abuse of rights based on the challenger’s aims or conduct?

## Decision

- The Reichsgericht set aside the appellate judgment and granted relief to S. S. as to the challenged resolution.
- The court treated votes cast by the family GmbH as subject to the same voting disqualification that would have applied had M. W. voted directly, where M. W. exercised decisive control over the GmbH’s voting decision on ratification.
- The court held the challenge action admissible without requiring S. S. to show any special interest beyond the statutory right of a shareholder to contest an unlawful resolution.
- The court rejected the argument that S. S.’s action should be barred as abusive absent exceptional misuse of the remedy—conduct amounting to using the lawsuit as a means of improper pressure (for example, coercion or extortion).

## Legal Principles

- A conflict-based voting bar for management on ratification matters is applied by function, not by the formal path through which the vote is cast; interposing another legal person does not avoid the disqualification when the conflicted manager controls that person’s vote.
- Where a shareholder entity is under the decisive influence of a director/officer whose conduct is being ratified, the entity’s vote may be disregarded for purposes of determining whether the ratification resolution passed.
- A shareholder action challenging a resolution is generally available upon alleging a legally relevant defect; it is not conditioned on proving a separate “special interest” beyond shareholder status.
- Abuse of rights is a narrow limit on shareholder challenges and requires extreme misuse of the procedure, not merely persistence, antagonism, or strategic litigation.

## Conclusion

RGZ 146, 385 holds that a statutory voting disqualification designed to prevent management from ratifying itself cannot be avoided by shifting the controlling family shares into a GmbH that remains under the manager’s decisive influence; the Reichsgericht therefore invalidated the ratification resolution and confirmed that minority shareholders may bring such challenges without a special individualized interest, subject only to rare cases of severe procedural misuse.


Opinion of the German Reichsgericht in the Matter of S. S. v. M. E. Corp., 2d Civil Division January 22, 1935, RGZ 146, 385 (1935)