The corporate provisional director: has due process been overlooked?

• Author: Payton, Harry A.
• Position: Florida

The statute makes no reference to how a court must treat the provisional director's recommendation for the disposition of an action.

Shareholders deadlocked in voting power may seek judicial dissolution pursuant to F.S. [sections] 607.1430.(1) Courts generally recognize, however, that judicial dissolution is an extreme remedy and will enter a decree of dissolution only when no other adequate remedy is available. Thus, Florida also offers shareholders alternative statutory relief to judicial dissolution. These alternative remedies are relatively new. Their application and constitutionality have not been questioned, as yet, by the appellate courts. It is unclear whether, in their application, they comport with constitutional principles of due process.

If a shareholder of a closely held corporation invokes the jurisdiction of the court pursuant to [sections] 607.1430, the court is empowered to appoint a provisional director as an alternative to judicial dissolution if it appears that the appointment will remedy the grounds alleged by the complaining shareholder. The provisional director shall have all the rights and powers of a duly elected director, including the right to notice of and vote at meetings of directors.(2)

Section 607.1435(2) mandates that the provisional director report to the court 1) concerning the matter complained of; or 2) the status of the deadlock, if any; and 3) the status of the corporation's business, as the court shall direct. Further, upon the direction of the court, the provisional director shall make "recommendations as to the appropriate disposition of the action."(3)

The statute is unclear in its application as to what recommendations the provisional director may make "as to the appropriate disposition of the action" and the character of those recommendations, as will be explained below. No Florida cases construe the statute, and the Model Business Code, from which the statute was drawn, does not provide assistance in construing it.

Nothing in the statute limits the power of the provisional director to make recommendations to the court concerning "the appropriate disposition of the action." However, constitutional considerations suggest the recommendations of the provisional director as to "the appropriate disposition of the action" are advisory only and subject to the due process rights of the parties to a trial on the issues raised in the pleadings. The disposition of the action solely upon the provisional director's recommendations in the absence of an evidentiary hearing would constitute an impermissible delegation of judicial responsibilities. The legislature failed to clarify this issue when it enacted [sections] 607.1435(2).

Provisional Director's Report to Court Is Advisory

1) The appointment of the provisional director is not a delegation of judicial power The role of the provisional director is to advise the court on such matters as the court shall direct. The statute does not prescribe the qualifications of the provisional director. He or she could be a lawyer, a business person, an accountant, or anyone who is an "impartial person who is neither a shareholder nor a creditor of the corporation."(4)

The statute does not authorize the provisional director to hear and receive evidence. Thus, although facially comparable to the role of a master provided for in Fla. R. Civ. P. 1.490, the provisional director's role is fundamentally different from that of a master.

The Florida Constitution...