Tuesday, November 15, 2011

Schnell v. Chris-Craft Industries, Inc. case brief

Schnell v. Chris-Craft Industries, Inc.
285 A.2d 437 (Del.Sup. 1971)

-Some of the shareholders of Chris-Craft had announced that at the next shareholders' meeting, they were going to hold a vote to replace the directors.  This worried the directors.
-The directors moved the annual meeting up from January to December, making it harder for stockholders to make travel arrangements, and therefore harder to show up to vote.
-Some of the shareholders sued to stop the directors from moving up the date of the shareholders' meeting.
-Under the by-laws of the company, and under Delaware State law, it was legal for the directors to change the date of a shareholders meeting, as long as they gave 60 days notice.  In this case they did.

-The Trial Court found for the directors, stated that the directors' actions were designed to obstruct the shareholders' efforts to gain control of the corporation.
-The Court declined to force the directors to reschedule the meeting.
-Shareholders appealed, the Delaware Supreme Court reversed.

-Can the directors, in complying with state law, move a meeting solely to obstruct shareholder's efforts to gain control of the corporation?

-No, it would be inequitable to allow directors to profit in this way.

-Delaware Supreme Court found that even though the directors strictly complied with Delaware law, it was inequitable for them to profit from their shady decision.

Contrast with Bove v. Community Hotel Corp. of Newport, R.I. (249 A.2d 89 (1969)), where the Court found that even though the directors were doing something shady, it was not a court's prerogative to question a technically legal business decision.

Course: Corporations.
Topics: Shareholder's meetings, Business Judgment Rule.

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