Zahn v. Transamerica (1947)
o Issue: Fraud and deceit- book value of tobacco they said was 6 million but the market value was actually 20 million.
o The board, dominated by Transamerica, did not disclose value or intentions properly to the shareholders.
o Transamerica board in reality controls Zahn board. They know the value of the tobacco. They also know they can call the class A stocks and buy them at $60 a share.
o They call in most of the class A shares.
o The value of the tobacco and the liquidation intentions of the board are unknown to those Class A shareholders.
o Had those Class A shareholders known the value, and the plan, they may have converted to Class B(their right) to share in the liquidated company value including the tobacco appreciation value.
o The board was aware that Class A get paid 2 to 1 as compared to Class B which is the shares Transamerica owned most of.
o Court found that Transamerica had a fiduciary duty as board members. When voting as a shareholder you can hold yourself out for your own good. BUT…when you vote as a board you have to honor your fiduciary duty.
o Disclosure should matter. They didn’t disclose the plan to liquidate OR the value of the tobacco.
o Thus that is a breach of their fiduciary duty and fraud and deceit.