Thursday, November 21, 2013

Kahn v. Tremont Corp. case brief

Kahn v. Tremont Corp. case brief summary
694 A.2d 422 (1997)


CASE SYNOPSIS
Plaintiff shareholder sought review of a decision of the Court of Chancery of the State of Delaware in and for New Castle County, which approved the purchase by defendants, corporation and board of directors, of shares of stock.

CASE FACTS
Defendants, corporation and board of directors, purchased shares of stock from a corporation, which was 90 percent owned by a trust for the family of a board member. Plaintiff shareholder alleged that defendant board member effectively controlled the three related companies and, through his influence, structured the purchase in a manner which benefited himself.

DISCUSSION

  • The court rejected the Court of Chancery's determination that defendant corporation's special committee established to negotiate the purchase of stock functioned independently. 
  • The court stated that all three members of the committee had previous affiliations with defendant board member or companies that he controlled and, as a result, received significant financial compensation or influential positions on company boards. 
  • The court concluded that the special committee did not operate in a manner that entitled defendants to shift from themselves the burden that encumbers a controlled transaction. 
  • The court reversed the Court of Chancery's decision and remanded the case for an entire fairness determination with the burden of persuasion on defendants.

CONCLUSION
The court reversed and remanded the Court of Chancery's decision approving defendants, corporation and board of directors', purchase of stock because the special committee established to negotiate the purchase did not function independently and, therefore, the burden shift to plaintiff shareholder was inappropriate.

Recommended Supplements for Corporations and Business Associations Law

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