Tuesday, February 26, 2013

Zeitlin v. Hanson Holdings, Inc. case brief

Zeitlin v. Hanson Holdings, Inc. case brief summary
48 N.Y.2d 684

SYNOPSIS: Appellant minority shareholder challenged an order of the Appellate Division of the Supreme Court in the First Judicial Department (New York), which affirmed partial summary judgment to respondent corporation in appellant minority shareholder's action contending that minority stockholders were entitled to share equally any premium paid for controlling shares.

FACTS:
-Plaintiff owned 2% of Gable Industries, Inc.
- Defendants owned 44.4% of the outstanding shares which they sold to Flintkote Co. for $15, giving Flintkote the controlling majority.
-The open market value of the shares was $7.38 per share. Plaintiff brought this action, believing all of the Gable shareholders were entitled to the premium paid by Flintkote.
-Appellant minority shareholder filed suit against defendant corporation and others contending that minority stockholders were entitled to an opportunity to share equally in any premium paid for a controlling interest in the corporation.
-The trial court granted defendant corporation's motion for partial summary judgment, and appellant minority shareholder sought review.
-The court on appeal affirmed, and appellant minority shareholder challenged the ruling.

HOLDING:
The reviewing court determined that adoption of such a rule would profoundly affect the manner in which controlling stock interests were transferred.

ANALYSIS:
-It would require, essentially, that a controlling interest be transferred only by means of an offer to all stockholders, i.e., a tender offer.
-The court held that such a rule would be contrary to existing law and concluded that if so radical a change was to be effected it would best be done by the legislature.

RULE:
-Absent bad faith such as corporate looting of assets or a conversion of a corporate opportunity, a party can purchase a controlling share of a corporation at a premium price without extending a tender offer to all shareholders.

OUTCOME: Partial summary judgment for respondent corporation and others was affirmed because appellant minority shareholder proposed adoption of a rule requiring a tender offer for the sale of controlling shares, that would be such a radical change, it would be best done by the legislature.

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