Anadarko Petroleum Corporation v. Panhandle Eastern Corporation

Facts

D is engaged in the pipeline transportation of natural gas. Prior to September 1986, a D subsidiary P was engaged in the exploration and production of crude oil and natural gas. On August 20, 1986, D's board of directors voted unanimously to effect a spin-off of D's production and exploration assets by distributing one share of P common stock for each issued and outstanding share of D stock held of record on September 12, 1986. The date for distribution of the stock dividend was set at October 1, 1986. P and D issued an Information Statement for P Common Stock ('Information Statement') dated August 29, 1986. Further, on September 18, 1986, D furnished a list of its stockholders of record as of September 12, to P's transfer agent to facilitate the distribution of the stock dividend. Representatives of P and D met with representatives of the New York Stock Exchange for the avowed purpose of creating a market for P stock prior to the date of distribution. The New York Stock Exchange approved the application and trading began in P stock on September 8, 1986. From September 8, 1986, to October 1, 1986, P and D stock were traded in essentially three forms. D's stock was traded the 'regular way' reflecting the combined value of P and D. A share of D traded the regular way included a due bill which required the seller to deliver to the buyer the P stock dividend if and when it was distributed. Second, D stock was traded 'ex-distribution.' This form of trading reflected only the value of D, with the seller retaining the right to the P stock dividend. Finally, trading in P was effected on a 'when-issued' basis, reflecting the value of P as an independent entity. Between September 8 and October 1, approximately three million shares of P were traded on a when-issued basis; one million of D were sold on an ex-distribution basis; and more than five million shares of D were traded the regular way. D began restructuring existing contracts between P and D. On September 30, 1986, Anadarko's board of directors met to resolve all the outstanding impasse issues relating to the spin-off mainly the modification of some of the contracts. Five of the then-seven Anadarko directors participated in the September 30 board meeting. Only one director, James T. Rodgers, was not affiliated with D or one of its subsidiaries. At the meeting, Rodgers was joined by Robert J. Allison, Jr., a director of both P and D, in protesting the terms of the disputed agreements as being unfair to Anadarko. The board was advised by P's General Counsel that it owed a fiduciary duty to P's prospective stockholders which would be breached if the board approved the unfair contracts. The disputed agreements were approved by P's board by a 3-2 vote. Following the approval of the agreements the three inside directors resigned, effective October 1, 1986, and were replaced by four new directors. The newly constituted board reviewed the disputed agreements and based on an opinion by outside counsel that the contracts were unfair and voidable, the board voted unanimously to rescind the agreements. If such a relationship exists D and its designated directors are required to demonstrate the entire fairness of the disputed agreements. P acknowledges that a parent does not owe a fiduciary duty to its wholly owned subsidiary. P argues that D's actions relating to the spin-off have established a class of stockholders to whom fiduciary duties are owed. P contends that by setting a record date for the dividend distribution and by establishing a market for P shares to be traded on a when-issued basis, D has created a fiduciary relationship with the prospective shareholders of Anadarko. P claims D and the inside directors of P have assumed responsibility for demonstrating that the agreements are entirely fair to P's new shareholders. P argues that record ownership passed to P's prospective stockholders as of September 12, the record date for the stock dividend. P claims the prospective stockholders of P were owed fiduciary duties by D and P's former directors. P relies on the fact that the disputed agreements were approved after the record date and that a stock ledger had been prepared and delivered to a transfer agent. P argued that the prospective stockholders were beneficial owners of P’s stock and therefore were owed a fiduciary duty. P also claimed that the directors were trustees of the stock, which created a fiduciary duty. The court rejected all the arguments. D was granted summary judgment. P appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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