Sunday, November 24, 2013

Carmody v. Toll Brothers, Inc. case brief

Carmody v. Toll Brothers, Inc. case brief summary
723 A.2d 1180 (1998)


CASE SYNOPSIS
Plaintiff shareholder brought an action against defendants, company and directors, alleging that the company's hostile takeover poison pill plan violated state law and the directors' fiduciary duty of loyalty. The company and directors filed a motion to dismiss the shareholder's complaint.

CASE FACTS
The company's directors adopted the plan with a "dead hand" provision that authorized a defined category of directors to redeem the preferred stock purchase rights. The shareholder contended that the provision was invalid as ultra vires and as a breach of fiduciary duty. The company argued that the shareholder's claims were not ripe, that he failed to make a pre-suit demand, and that the provision was valid. The court concluded that the complaint stated legally sufficient claims.

DISCUSSION

  • As the provision violated Del. Code tit. 8, § 141(a), (d) and breached fiduciary duties, the complaint was ripe, and a pre-suit demand was not required. 
  • The court found that the plan: 
  • (1) conferred the power to redeem the pill only upon some, but not all, of the directors, which transgressed the statutorily protected shareholder right to elect the directors who would be so empowered, 
  • (2) disenfranchised the shareholder without a compelling justification, 
  • (3) made a proxy contest "realistically unattainable," and
    (4) caused a current adverse impact.
  • Because the shareholder's claims were individual, not derivative, a pre-suit demand was not required and, if it were, grounds existed for excusal.

CONCLUSION
The court denied the motion to dismiss the shareholder's complaint that alleged that a hostile takeover poison pill plan violated state law and the directors' fiduciary duty of loyalty.

Recommended Supplements for Corporations and Business Associations Law

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