Friday, November 22, 2013

Lacos Land Company v. Arden Group, Inc. case brief

Lacos Land Company v. Arden Group, Inc. case brief summary
517 A.2d 271 (1986)


CASE SYNOPSIS
Plaintiff sought a preliminary injunction to enjoin defendants from issuing common stock in a recapitalization plan on claims that the shareholder vote approving the charter amendment that authorized the new stock was fatally defective by reason of material misrepresentations and omissions in defendants' proxy statement.

CASE FACTS
Plaintiff was a shareholder in defendant company, which, pursuant to a recapitalization plan devised by defendant officer, proposed to issue a new class of common stock that would create a dual common stock structure with one class exercising control of company. The company's shareholders approved the plan on a vote based upon the company's proxy statement. The proxy statement failed to disclose whether the plan gave the officer the power to single-handedly effectuate certain voting decisions. Further, at the shareholder vote approving the plan, the officer threatened to block transactions that were beneficial to company if the plan was not approved.

DISCUSSION
  • On plaintiff's motion, the court preliminarily enjoined the issuance of the new stock, holding that: 
  • (1) the vote was inappropriately affected by the officer's explicit threats, and 
  • (2) the proxy statement contained material misrepresentations or omissions as to the officer's post-plan voting power and, thus, rendered fatally defective the shareholder approval based upon the proxy.

CONCLUSION
The motion for preliminary injunction was granted; plaintiff demonstrated a reasonable probability of ultimate success on its claim that defendants' proxy statement was misleading in a way that was material to a reasonable shareholder voting upon the proposed recapitalization.


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