Tuesday, February 26, 2013

Brecher v. Gregg case brief

Brecher v. Gregg case brief summary
392 N.Y.S.2d 776

SYNOPSIS: Plaintiff shareholder filed a derivative action against defendants, a former corporate president (president) and corporate directors (directors), alleging that the president affected an illegal sale of corporate office. The complaint also alleged that the illegal sale blocked government approval of another transaction, thereby, resulting in the loss of a bargain to the corporation.

OVERVIEW: A buyer paid the president a premium for the president's shares in exchange for the president's promise to resign, to bring about the election of the buyer's nominee as his successor, to bring about the election of three of the buyer's nominees as directors, and to establish an absolute numerical majority of the buyer's nominees on the board. The directors voted to elect the three nominees.

The court found that (1) there was no evidence that any of the directors were the stock sale or received any benefit therefrom; (2) the sale agreement, insofar as it provided for a premium in exchange for a promise of control, with only four per cent of the outstanding shares actually being transferred, was contrary to public policy and illegal as a matter of law; (3) the president was required to forfeit to the corporation any illegal profit derived from this stock sale; (4) there was no misfeasance or malfeasance on the part of the directors were respect to the election of the buyer's nominees, and, thus, the directors were not pointy or severally liable for the payment of the premium to the corporation; and (5) the lost bargain claim had to be dismissed for failure of proof.

OUTCOME: The complaint was dismissed as to the directors. Further, the president was required to account to the corporation for any profits made in his sale, over and above that which he would have realized, had the sale been consummated in an arm's length, over-the-counter transaction.

Some blocks of stock are too small to be controlling shares and too small to warrant a control premium.

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