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The burden of demonstrating bad faith, fraud, breach of fiduciary duty or abuse of discretion on the part of the directors of a corporation rests on the party seeking judicial mandatory relief respecting the declaration of dividends. It is not the province of the court to act as general manager of a private corporation or to assume the regulation of its internal affairs. If there are plausible business reasons supportive of the decision of the board of directors, and such reasons can be given credence, a court will not interfere with a corporate board's right to make that decision. It is not the courts' function to referee every corporate squabble or disagreement. It is their duty to redress wrongs, not to settle competitive business interests. Absent any bad faith, fraud, breach of fiduciary duty or abuse of discretion, no wrong cognizable by or correctable in the courts has occurred.
Arnold Zidell, a minority shareholder, who held stock in four related, closely held corporations, sought to compel the directors of those corporations to declare dividends. He alleged that the corporations could afford to pay additional dividends, that he had left the corporate payroll, that those shareholders who were working for the corporations were receiving generous salaries and bonuses, and that there was hostility between himself and the other major shareholders.
Was the evidence presented sufficient to meet Zidell’s burden of proof to show bad faith?
The court held that the evidence in support of these allegations was insufficient to meet Zidell’s burden of proof to show bad faith. The court found that a considerable amount of credible evidence had been introduced to explain the conservative dividend policy. The court further found that Zidell had left his corporate employment voluntarily and was not forced out.