Duties of Directors and Controlling Stockholders  After its liquidation, the surtax was assessed against Pool Co.
surtax was assessed against Pool Co.’s stockholders,
22 So. 2d 131 – Pool v. Pool et al.
Ott, J.
Plaintiff Robert Pool was a director and stockholder of SD Pool Realty Company. A dispute
arose between him and the defendants (his siblings, who were also stockholders and
directors). As a result, the dividends that year were not distributed within the time fixed by
law, and a surtax was assessed on the corporation.
He filed this suit to recover from the defendants (stockholders and directors of the
corporation) his share in the payment of the surtax1, alleging that the same was due to the
defendants’ misfeasance. The CA of Louisiana First Circuit ruled in the defendants’ favor
because since Robert was also a director, it was also his duty to ensure that the earnings
were distributed on time.
DOCTRINE
(from B2015 reviewer) Directors are only required to exercise reasonable care and diligence,
and act in good faith and with that judgment and discretion which ordinarily prudent men
exercise under similar circumstances.
A director cannot sue for misfeasance of the other directors if he himself was also
responsible and failed to fulfill his duties as such.
FACTS
1. SD Pool Realty Company (Pool Co.) was a holding corporation consisting of five
siblings: plaintiff Robert Pool, his brother Stephen, and their three sisters, Mrs. Farrell,
Mrs. D’Aquin, and Mrs. Jarreau. They each owned 20% of the company’s stock.
 The defendants are Stephen, Mrs. Farrell, and Mrs. D’Aquin.
 At the stockholders’ meeting, where all of them were present, all of them were
elected as directors. Robert was elected secretary and Stephen was elected
president.
2. Sometime in 1938, Robert suggested that the books of Pool Co. be moved from its
domicile in New Orleans (their parents’ house) to his residence in Ventress, Louisiana,
since he was the secretary. All three defendants objected to this. A rift arose between
them and Robert demanded that Stephen resign as president and director, which the
latter refused to do.
 Robert, as secretary, wrote the Times Picayune Publishing Co.2 requesting
that it send all future dividends, reports, etc., to his residence in Ventress.
 Stephen also wrote the Times Picayune requesting it to ignore Robert’s letter
and to continue to send all communications to New Orleans.
 Because of the dispute, the Times Picayune held the check representing its
dividends due to Pool Co., refusing to deliver it until Robert and Stephen had
settled the matter in court. Thus, no dividend checks were sent to Pool Co. in
1938.
3. Pool Co. was assessed a surtax for undistributed profits under the Revenue Act of 1938
(because of the above dividends due to it by the Times Picayune), for its failure to
distribute said dividends to the stockholders before March 15, 1939.
1 Surtax – an extra tax or charge
of which Robert was forced to pay his pro rata share (20%), amounting to
$766.28.
4. Robert sued the three defendants for the amount he contributed to the surtax, alleging
that the surtax was assessed because the defendants wanted him and Mrs. Farrell out
of the corporation, which led to their dispute, which in turn caused the dividends in
question to be held up by Times Picayune and not distributed on time.
 Robert also claims that the defendants were guilty of negligence, because the
Times Picayune actually sent the check for the dividends in January 1939 (2
months before the deadline) and the defendants did nothing.
5. The lower court ruled that Robert could not recover from the defendants. He appealed.
ISSUE with HOLDING
1. W/N Robert Pool can recover from the defendants – No.
 Robert was also a director of the corporation (see Fact #1), and as thus he
was also duty-bound to ensure that it distributed its dividends to the
stockholders on time to avoid paying the surtax.
 The defendants, as directors, were only required to exercise reasonable care
and diligence and act in good faith and with that judgment and discretion
which ordinarily prudent men exercise under similar circumstances.
o They did not know that the dividends had to be distributed before
March 15 to avoid paying the surtax.
o The defendants even employed a CPA and an attorney to make
Pool Co.’s income tax returns for that year. They had a right to rely
on the advice of the latter.
o Robert actually admitted that he knew of the March 15 deadline, and
yet neglected to advise the defendants of the fact (even though he
was also both a director and a stockholder).
 It was in the interest of the defendants, who were both directors and
stockholders, to avoid paying the surtax.
o Thus, it is hardly inconceivable that they would deliberately refuse
to distribute the dividends on time had they known of the deadline,
since they would all have to contribute equally to any surtax
assessed against Pool Co. (each owning 20% of the corporation’s
shares).
DISPOSITIVE PORTION
Lower court judgment affirmed.
DIGESTER: Cristelle Elaine V. Collera
2
The case didn’t mention how the Times Picayune was related to the SD Pool Realty Company, but it’s probably one of the
companies that Pool Co. is a stockholder in (since it was a holding corporation).
1