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No Breach of Duty or Waiver of Rights in Continued Dispute on Stock Transfer

In Sandy Gordon Rounds, John F. Gordon, Richard Gordon and Margaret W. Gordon v. Mallets Bay Club, Inc. and James McGarry, 2016 VT 102 (September 9, 2016), the Vermont Supreme Court reversed and remanded a trial court’s summary judgment ruling that was in Plaintiffs’ favor.

Issue: Plaintiffs’ father purchased certain property in Defendant Mallets Bay Club, Inc. (“MBC”) and, as part of such purchase, received stock in MBC. MBC’s bylaws were subsequently amended to require that any stockholder selling real property in MBC include all MBC stock owned by stockholder in such sale. Plaintiffs’ father, when selling his property in MBC, disputed the amended bylaw and only included a portion of his MBC stock in the sale. Plaintiffs’ father and MBC, not wanting to hold up the sale but recognizing a dispute as to the enforceability of the amended bylaw, agreed that his remaining MBC stock be held by Defendant James McGarry (“McGarry”), as agent for the transfer of the MBC stock, “until further directive by [Plaintiffs’ father] or, if necessary, pursuant to the order of a court of competent jurisdiction.” Following Plaintiffs’ father’s death, Plaintiffs demanded that Defendants transfer the remaining MBC stock to Plaintiffs. Defendants refused to transfer the remaining MBC stock, arguing that there was no agreement between the parties or court order.

Holding: Since there was no agreement between the parties or a court order resolving the enforceability of the amended bylaw, Defendant McGarry had not breached any contract or his fiduciary duty, and Defendant MBC had not waived its right to enforce the amended bylaw. Accordingly, the Court reversed and remanded to resolve the outstanding issue of the enforceability of the amended bylaw.

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