Monday, March 23, 2015

Karen R. Goozh v. Howard Richmond (Cir. Ct. Mont. Cnty.)

Filed: July 8, 2014

Opinion by: Ronald B. Rubin

Holding: A stockholders’ agreement that expired upon the “dissolution” of the company was terminated when the company was administratively dissolved for failure to file a regular report, despite having its charter later reinstated when the failure was cured.

Facts: Stockholders in a Washington, D.C., company entered into a stockholders’ agreement that included a provision whereby the agreement would terminate upon the “liquidation or dissolution of the Company.” The company’s charter was then revoked twice after it failed to file a required biennial report with the District of Columbia Department of Consumer and Regulatory Affairs. In each instance, the revocation was eventually annulled, but the Plaintiffs argued that the stockholder’ agreement remained terminated after the first revocation despite such reinstatement.

Analysis: The court noted that a different District of Columbia statute applied to each administrative dissolution of the company. In the second instance, the law stated that when a company’s charter was revoked and later restored, the restoration would “relate back” to the date of the administrative dissolution. In other words, the gap in the company’s continuity would effectively be erased.

The court found two D.C. cases instructive: In Accurate Construction Co. v. Washington, a contract entered into while a company’s charter was revoked was held to be unenforceable, and in T.K., Inc. v. National Community Reinvestment Coalition, Inc., the tenant under a commercial lease was found to have remained a valid party to the lease despite the revocation and subsequent reinstatement of its charter during the lease term.

Finding neither case dispositive, the court said that because the stockholders’ agreement failed to define the term dissolution, the plain meaning of the word should apply. The court acknowledged that the drafters may not have intended a “technical” or “administrative” dissolution of the company to terminate the agreement. Nevertheless, it held that a reasonable person would understand the word dissolution to include such events.

Although the case hinges on D.C. law, the court occasionally draws comparisons with Maryland law and cites Maryland law when discussing the effects of revival.

Full opinion is available in PDF.

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