Perlman v. Feldmann case brief

Perlman v. Feldmann (2nd Cir. 1955)

• Feldmann (dominant stockholder, president, chairman of board) sold his shares for $20 each, even though the market price has not exceeded $12 and the book value was $17.03.
• Plaintiffs, the minority shareholders, contend that the consideration paid for the stock included compensation for the sale of a corporate asset. This power was the ability to control the allocation of the corporate product in a time of short supply, through control of the board of directors.
• Court views this as a misappropriation of a corporate opportunity case. The corporation could have used its market position to finance improvements in its exitsing plants or acquire new ones, or build up patronage in its geographical area for when steel becomes more abundant.
• We have here no fraud, no misuse of confidential information, no outright looting of a helpless corporation. But “the actions of the defendants in siphoning off for personal gain corporate advantages to be derived from a favorable market situation do not betoken the necessary undivided loyalty owed by the fiduciary to his principal”.
• When the sale necessarily results in a sacrifice of this element of corporate good will and consequent unusual profit to the fiduciary who has caused the sacrifice, he should account for his gains.
• Hence to the extent that the price received by Feldmann included such a bonus, he is accountable to the minority shareholders who sue here.

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