Tuesday, March 3, 2009
Like the case memorialized in last week's Limerick, this is a case about the enforceability of a shareholders' agreement. Like Owen v. Cohen, this case offers the opportunity to develop the Catskills shtick theme in the Limericks for Lawyers.
The Galler brothers, Benjamin and Isadore (Izzy to me) each owned 47.3% shares in a wholesale drug business. They entered into a shareholders' agreement in 1955 that would guarantee each family two seats on the corporation's four-member board, even if one of the brothers died. It also provided for dividends and a death benefit to the widow of either brother. Ben had a heart attack while the agreement was being negotiated. When he died two years later, Isadore and his son Aaron refused to honor the agreement. In a close corporation in which minority shareholders excluded from the agreement do not object, the test for the enforceability of such agreements is simple reasonableness.
The court found the agreement in question here reasonable in terms of the amount to be paid, the terms for payment (contingent upon a specified earned surplus), and duration. The last of these factors is interesting in this case. The agreement provided that it was to last for the lifetimes of the Galler brothers and their wives. The court's rendition of the facts of the case suggests that Ben's widow, Emma, was a generation younger than he was. Perhaps the in-laws weren't crazy about Ben's taste in women. Perhaps Emma was a second wife, viewed as an interloper or a gold-digger.
It is interesting to explore with students why the business's minority shareholder (a long-time employee of the firm) raised no objections to the agreement.
The following Limerick issues from beyond the grave, from Izzy and Ben's yiddische mama.
Galler v. Galler
Is Emma an utter schllemiel?
Izzy, hear this appeal!
She who life to you gave,
Oy! She'll turn in her grave!
Abide by the '55 deal!