Health First, Inc., et al. vs. Paul T. Naidas, et al.

[SEC-SICD * CASE NO. 2382. April 10, 1987.] HEALTH FIRST, INC. AND VICTOR TAKAI , petitioners , vs . PAUL T. NAIDAS, EUFRACIA NAIDAS and EUGENE NAIDAS , respondents . D E C I S I O N This is a petition filed by Mr. Victor Takai, in his behalf and/or as acting Chairman of Health First Corporation, to compel the board of directors and the stockholders to convene for the purpose of continuing 'the business operation of the corporation and to create a management committee to administer its programs. Summons were issued to the respondents on October 1, 1985. Respondents, however, failed to file their answer within the reglementary period. On November 29, 1985, upon motion of the petitioner's counsel, the respondents were declared in default and reception of evidence for the petitioners was held ex-parte. At the reception of evidence, petitioner presented testimonial and documentary evidence to show the following undisputed facts: Health First Corporation was organized by petitioner Victor Takai, together with his wife Lourdes Takai and Loreleto Cuatero (called the TAKAI GROUP) and the respondents Paul T. Naidas, Eugene Naidas & Eufracia B. Naidas (referred to as NAIDAS GROUP) for the purpose of operating/selling in-house health, sports and recreation programs. The corporation was duly licensed to sell its securities to the public. Based on the articles of incorporation, the number of directors and the outstanding capital stock of the corporation were evenly distributed between the TAKAI GROUP and that of the NAIDAS. After the corporation succeeded in selling a few hundreds of its shares, misunderstanding and/or disagreement ensued between the two (2) groups regarding the use of the property or facilities of the corporation resulting thereby in a corporate activities' deadlock. As a result thereof, the corporation failed to realize the needed cash flow requirement for the successful implementation of its program. The petitioner had, on several occasions, attempted to call a board of directors and/or stockholders' meeting to resolve the misunderstanding but the respondents refused to attend and/or participate in any and all such meetings. llcd The petitioner is seeking relief from the Commission to compel the members of the board of directors and/or the stockholders of the corporation to convene in a meeting to resume its business operation. A reading, however, of the complaint shows that what was intended thereon was for the breaking of the impasse in the corporation. The Commission believes, and so holds, that under the peculiar circumstances obtaining in this case, its power to arbitrate the dispute involving corporate deadlock applies only in cases of close corporation and does not apply to open corporation like the corporate petitioner herein. Furthermore, even if the Commission directs the corporation or petitioner to call a meeting of the corporation, the same will not serve any purpose or remedy the problems now besetting the parties because there may be compliance for the call/notice, but quorum may not be obtained. Antecedent facts have already shown that the respondents have refused to participate in any corporate meeting and the Commission is without authority to compel any member of the board of directors or any stockholders to attend in person or by proxy any such meeting called upon even by orders of this Commission. Deadlock among the directors or stockholders respecting the management of the Corporation's business resulting in the failure of the corporation to realize its objective/programs is not to be considered mismanagement in the technical sense to justify the appointment of a management committee. This is a business judgment that is better left to the corporate managers. It is a well known rule of law that questions of policy or of management are left solely to the decision of the officers and directors of a Corporation, and the Commission is without authority to substitute its judgment over that of the board of directors. IN VIEW OF THE FOREGOING CONSIDERATIONS, this case should be, as it is hereby, DISMISSED. SO ORDERED. (SGD.) ANTONIO M. ESTEVES Hearing Officer