Title: Schultz v. Schultz
Citation: N/A
Docket Number: 941129
State: Virginia
Issuer: Virginia Supreme Court
Date: June 9, 1995

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.