Klang v. Smith's Food & Drug Centers, Inc. case brief
Klang v. Smith's Food & Drug Centers, Inc. case brief summary
702 A.2d 150 (1997)
Plaintiff class action shareholder
sought review of a judgment of the Court of Chancery of the State of
Delaware in New Castle County, which determined that defendant
corporation did not violate Del. Code Ann. tit. 8, § 160 by
impairing its capital when it repurchased shares in a transaction
with a third party.
CASE FACTS A corporation repurchased its shares in
a transaction with a third party. The shareholder contended that the
corporation's repurchase of shares violated the statutory prohibition
against the impairment of capital set forth in Del. Code Ann.
tit. 8, § 160. The shareholder also claimed that the board of
directors violated their fiduciary duty of candor by failing to
disclose material facts prior to seeking stockholder approval of the
transactions in question.
The court disagreed and affirmed the
judgment of the lower court.
The court held that the lower court was
correct in finding that there was no impairment of capital and there
were no disclosure violations.
The court noted that the corporation
did not dispute that its corporate books showed a negative net worth
but argued that the corporations had the presumptive right to revalue
The court agreed and noted that the corporate books did
not necessarily reflect the current values of its assets and
Finally, the court held that the board of director's
were not required to make disclosures to shareholders concerning the
transaction and did not violate their fiduciary duties.
CONCLUSION The court affirmed the holding that the
corporation did not impair its corporate capital in violation of
statutory law when it repurchased its shares. The court also affirmed
the determination that the corporation's directors did not breach
their fiduciary duty to a shareholder.
Recommended Supplements for Corporations and Business Associations Law
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