Saturday, November 23, 2013

Klang v. Smith's Food & Drug Centers, Inc. case brief

Klang v. Smith's Food & Drug Centers, Inc. case brief summary
702 A.2d 150 (1997)

Plaintiff class action shareholder sought review of a judgment of the Court of Chancery of the State of Delaware in New Castle County, which determined that defendant corporation did not violate Del. Code Ann. tit. 8, § 160 by impairing its capital when it repurchased shares in a transaction with a third party.

A corporation repurchased its shares in a transaction with a third party. The shareholder contended that the corporation's repurchase of shares violated the statutory prohibition against the impairment of capital set forth in Del. Code Ann. tit. 8, § 160. The shareholder also claimed that the board of directors violated their fiduciary duty of candor by failing to disclose material facts prior to seeking stockholder approval of the transactions in question.

  • The court disagreed and affirmed the judgment of the lower court. 
  • The court held that the lower court was correct in finding that there was no impairment of capital and there were no disclosure violations. 
  • The court noted that the corporation did not dispute that its corporate books showed a negative net worth but argued that the corporations had the presumptive right to revalue its assets. 
  • The court agreed and noted that the corporate books did not necessarily reflect the current values of its assets and liabilities. 
  • Finally, the court held that the board of director's were not required to make disclosures to shareholders concerning the transaction and did not violate their fiduciary duties.

The court affirmed the holding that the corporation did not impair its corporate capital in violation of statutory law when it repurchased its shares. The court also affirmed the determination that the corporation's directors did not breach their fiduciary duty to a shareholder.

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