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In the second instance, the law stated that when a company’s charter was
revoked and later restored, the restoration would “relate back” to the date of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was revoked was held to be unenforceable, and in T.K., Inc. v.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.
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