This direct and derivative action arises out of a dispute between two men engaged in the business of making short term, unsecured loans. Plaintiffs had asserted against various defendants direct claims for breach of contract, derivative claims for breach of fiduciary duties and aiding and abetting said breach and claims for attorneys’ fees for a prior, related action and for this action. Hallinan breached the oral contract with plaintiffs, Hallinan and Gordon committed multiple breaches of their fiduciary duties to CR, certain corporate defendants aided and abetted certain of those breaches of fiduciary duty, Plaintiffs are entitled to their attorneys’ fees for the Section 220 action and for the derivative claims on which they prevailed in this action. The Court hold that CR should be dissolved and a receiver appointed to wind up its affairs. Hallinan and Gordon bore the burden of establishing the entire fairness of their salaries and the management fee. Director Defendants argue that because they, as a majority of the CR stockholders ratified the challenged transactions, the burden shifts to Plaintiffs to prove that the transactions were not entirely fair. To have any effect, stockholder ratification must be by a majority of the disinterested and fully informed stockholders. Here, the shares voting to ratify Hallinan and Gordon’s actions were held by Hallinan and Gordon themselves. Hallinan and Gordon failed to show that any of the decisions to themselves executive compensation were the product of fair dealing. Director Defendants provided no credible testimony that their compensation was appropriate in light of CR’s economic and financial circumstances. The Court thus concludes that Hallinan and Gordon failed to satisfy the requirement of entire fairness to CR and therefore breached their fiduciary duties to CR by paying themselves the executive compensation they did. Director Defendants failed to meet their burden that the price was entirely fair to CR. Hallinan and Gordon’s utter failure to demonstrate that the management fee was the result of a fair process causes the Court to conclude that the management fee was not entirely fair to CR. The Court found that Hallinan and Gordon never even considered an undertaking and made no decision to accept an implicit one. The presumptions and protection of the business judgment rule cannot attach to such a nondecision. Further, such a nondecision cannot satisfy the requirements of Section 145. Therefore, the Court concluded that CR’s payment of Hallinan and Gordon’s expenses for the defense of this action was ultra vires. Main Street and TC are liable to CR for aiding and abetting certain of the Director Defendants’ breaches of fiduciary duties. The facts and circumstances here, however, comprise the very rare case where the appointment of a receiver and the dissolution of a solvent corporation is necessary. Hallinan and Gordon have repeatedly breached their fiduciary duties in a continuing effort to enrich themselves at the corporation’s and Plaintiff Contact’s expense. Without the appointment of a receiver to wind up CR’s affairs, the Court concludes that Hallinan and Gordon will continue to breach the duties they owe CR and thus cause further harm to the corporation and Plaintiffs. The Court ordered to appointment of a receiver for CR. Before dissolution, Hallinan shall repay to CR his and Gordon’s salaries as damages for breach of the oral agreement to form CR. No further relief for the breach of fiduciary duties by Hallinan and Gordon with respect to their compensation is necessary. Hallinan, Gordon and TC are jointly and severally liable for breach of fiduciary duties for CR’s payment of a management fee to TC and shall repay to CR all money paid as a management fee. Hallinan and Gordon shall also repay to CR all money advanced to them for the defense of this action as remedy for CR’s void act. Thus, if Carlson or Contact had a clearly established right to inspect CR’s books and records and Plaintiffs have shown by clear evidence that Hallinan or Gordon acted in subjective bad faith in refusing Plaintiff’s inspection demand, then the culpable Director Defendant will be liable to Plaintiffs for their attorneys’ fees in the Section 220 action. Plaintiffs have made the requisite showing. Hallinan and Gordon’s attempt to remove Carlson as a director of CR two days after he formally requested documents from CR pursuant to Section 220 amounts to a bad faith attempt to deny Carlson something to which he clearly was entitled. The Court6 therefore concluded that the Director Defendants were liable to Plaintiffs for their reasonable attorneys’ fees for the Section 220 action.
