Friday, November 22, 2013

Lehrman v. Cohen case brief

Lehrman v. Cohen case brief summary
222 A.2d 800 (1966)

Plaintiff appealed the order for summary judgment in favor of defendants granted by the Court of Chancery (Delaware), contending that the stock arrangement between the parties was in effect a voting trust, and thus illegal under the Voting Trust Statute, Del. Code Ann. tit. 8, § 218.

In hopes of avoiding disruption of company business, plaintiff and defendants agreed to transfer ownership of stock in the business. The agreement included establishment of a fifth directorship to obviate the risk of deadlock that the equal division of voting power between defendants' stock and plaintiff's stock perpetuated. To implement the agreement, the company's certificate of incorporation was amended to create a third class of voting stock entitled to elect the fifth director. Plaintiff claimed that the creation, issuance, and voting rights given in the share of this new stock was illegal, that it separated the attributes of ownership, and that it was a disguised trust contrary to the Voting Rights Statute, Del. Code Ann. tit. 8, § 218.

Applying the Abercrombie test, the court concluded that there was no disguised trust, and the new class of voting stock did not illegally alter the attributes of the originally-issued stock.

The court affirmed; after application of the Abercrombie test showed that there was no disguised trust, the court held that the voting powers and participating rights of the new class of stockholders were made legal through specification in the company's certificate of incorporation.

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