Present: All the Justices
MARILYN S. SCHULTZ
v. Record No. 941129 OPINION BY JUSTICE LEROY R. HASSELL
June 9, 1995
GERALD A. SCHULTZ, ET AL.
FROM THE CIRCUIT COURT OF HENRICO COUNTY
George F. Tidey, Judge
In this appeal of a decree in a suit to dissolve a
corporation, we consider whether a stockholder who has been
ordered by a court to take certain action is a necessary party.
Gerald A. Schultz and Marilyn S. Schultz, husband and wife,
both certified public accountants, were the sole shareholders,
directors, and officers of an accounting firm organized as a
Virginia professional corporation, Gerald A. Schultz &
Associates, P.C., Inc. Gerald and Marilyn are also litigants in
an acrimonious divorce proceeding in the Circuit Court of
Middlesex County. The chronology of events in these two suits is
important.
The divorce court entered a decree that prohibited Gerald
and Marilyn from transferring any assets out of the marital
estate. The divorce court appointed a "special master" who
determined that the fair market value of Gerald A. Schultz &
Associates was $500,000.
Gerald filed this dissolution suit pursuant to Code § 13.1-
747 against Gerald A. Schultz & Associates, after the divorce
court had entered the decree prohibiting him from transferring
assets out of the marital estate. Marilyn was not a named party
in this suit. The dissolution court conducted an ore tenus
hearing, considered the testimony of several witnesses, including
Marilyn, and held that the corporation's board of directors was
"deadlocked." The dissolution court dissolved the corporation
and appointed a receiver.
Subsequently, Marilyn filed a motion to intervene. She
asserted that Gerald sought relief against her personally and
that the dissolution suit was filed to circumvent the divorce
court's order which had prohibited him from transferring any
marital assets. She also requested in her motion that the court
reconsider its order dissolving the corporation, and she sought a
dismissal of the order of dissolution. The dissolution court did
not adjudicate her motion.
Marilyn also filed a motion in the divorce proceeding,
requesting that the divorce court hold Gerald in contempt of
court for violating that court's order enjoining the transfer of
any marital assets. The divorce court informed the dissolution
court, by letter, that the value of the corporation was an issue
in the divorce proceeding, and that it had enjoined Marilyn and
Gerald from transferring any property out of the marital estate.
The dissolution court, by letter, assured the divorce court that
"no further Orders or proceedings will be conducted" in the
dissolution suit until all matters were resolved in the divorce
proceeding or with the concurrence of the divorce court.
Subsequently, without notice to Marilyn or the divorce
court, the dissolution court entered an "order approving plan of
reorganization and dissolution and compelling production of
documents and information." Marilyn filed a motion requesting
that the dissolution court vacate that order. That court denied
*
the motion, and we awarded Marilyn an appeal.
*
We find no merit in Gerald's contention that Marilyn's
appeal is not timely.
Marilyn argued in her motion to vacate, and asserts on
appeal, that the dissolution court erred by entering an order to
dissolve Gerald A. Schultz & Associates because, pursuant to Code
§ 13.1-747(D), she is a necessary party in a suit to dissolve the
corporation. Gerald argues that the dissolution court "properly
took no action on Mrs. Schultz's Motion to Intervene and made no
error in neglecting to include her as a party defendant." We
disagree with Gerald. Code § 13.1-747 authorizes a circuit
court to dissolve a corporation for certain enumerated reasons
including, under certain circumstances, a deadlock in the board
of directors. Code § 13.1-747(D) states: "It is not necessary
to make directors or shareholders parties to a proceeding to be
brought under this section unless relief is sought against them
individually."
Gerald alleged, in his bill of complaint, that there were
only two shareholders in the corporation, that each shareholder
owned 50% of the outstanding shares, and that the directors were
"deadlocked." Gerald asked that the court "dissolve the
defendant corporation . . . appoint a receiver, and issue such
injunctions and orders as may be necessary to preserve corporate
assets, and [grant] such further relief as the case may require."
The dissolution court granted the relief that Gerald had
requested by entering an order approving the plan of dissolution.
That order granted Gerald relief against Marilyn individually in
numerous respects. The order directed that Marilyn cooperate
with the receiver and provided that she "shall execute such
documents, agreements and instruments and produce to the Receiver
in a prompt manner all documents and information requested by the
Receiver in connection with the Plan [or] implementation of the
Plan." The plan also provided for the formation of a new
corporation in which Marilyn would be the sole shareholder. The
plan imposed numerous obligations upon Marilyn and her court-
ordered new corporation, one of which is to require the
corporation to indemnify and hold Gerald A. Schultz & Associates
harmless from certain claims.
Certainly, under these facts, Marilyn is a necessary party
against whom relief was both sought and granted individually in
this suit. And, as we have said, "a court cannot render a valid
judgment when necessary parties to a proceeding are not before
the court." Allen v. Chapman, 242 Va. 94, 99, 406 S.E.2d 186,
188 (1991); McDougle v. McDougle, 214 Va. 636, 637, 203 S.E.2d
131, 133 (1974). Therefore, we hold that the dissolution court
erred by failing to grant Marilyn's motion to vacate the
dissolution order.
Accordingly, we will reverse the judgment of the dissolution
court. We will direct the dissolution court to vacate the order
approving the plan of reorganization and dissolution and
compelling production of documents and information. We will also
direct the dissolution court to enter an order granting Marilyn's
motion to intervene. Additionally, as we previously observed,
the value of Gerald A. Schultz & Associates is an issue involved
in the divorce proceeding in Middlesex County. Therefore, we
will direct the dissolution court to stay all proceedings in the
dissolution suit until the divorce proceeding is final.
Reversed and remanded.