Blasius Industries v. Atlas Corp.
SUBJECT: Particular defensive measures interfering with shareholder voting get enhanced scrutiny.
-Blasius started buying up shares of Atlas, and ended up with about 9% of the stock. They suggested that Atlas liquidate most of their assets and give the shareholders a nice big dividend. Atlas' management was not keen on this idea.
- Blasius sent Atlas' management a precatory resolution saying that they should restructure, double the size of the board of directors, and elect Blasius' candidates to those positions.
-A precatory resolution, is a letter sent to a board of directors from a powerful shareholder threatening them to acquiesce to a particular policy or else they would try to get their way through a shareholder vote.
-In response, Atlas management held an emergency meeting of the board, amended the by-laws to add a few more directors, and appointed Atlas-friendly people to those new directorships. Blasius sued.
-Board action intended to thwart the free exercise of the SH franchise must satisfy the “heavy burden” of demonstrating a “compelling justification” for their action.
i. The Trial Court found that Atlas' management was not acting selfishly because they were worried they might lose their jobs, but acting in what they perceived to be the best interests of the corporation because they honestly believed that Blasius' goals would harm the corporation.
ii. However, the Court found that even when an action is taken in good faith, it could constitute an unintended violation of the duty of loyalty that the directors owes to the shareholders.
The directors are in effect agents of the shareholders. If the purpose of an action is to obstruct the shareholders' reasonable control over their business, that is inequitable. Basically, the directors work for the shareholders, so if there is a disagreement between the shareholders and the directors, the directors have to defer to the judgment of the shareholders.
Shareholder's are seen as very important in corporations. The law states that directors are agents that work for the shareholders. In a Corporations exam you will probably encounter a question in which the shareholders and the directors do not agree on a particular issue. If such a case arises, be prepared to state that the judgement of the shareholders is generally considered to be supreme. However, consider the Business Judgement Rule in your final exam analysis
Interested in learning how to get the top grades in your law school classes? Want to learn how to study smarter than your competition? Interested in transferring to a high ranked school?