Cheff v. Mathes

199 A.2d 548 (1964)

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Nature of the Case

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Facts

Meremont approached Holland Furnace Company (Holland) about the possibility of a merger. The directors (D) of Holland decided against the merger. Meremont responded by buying a large block of Holland and demanding a place on the board of directors of Holland. The directors at Holland refused to consider this request. The Holland board voted to investigate Meremont and found that they had been involved in takeovers and lootings of corporations in the past. There was evidence that present employees of Holland were worried about the potential acquisition of Holland by Meremont and that there was substantial unrest. Then a Meremont employee claimed that the retail business of Holland was obsolete and in serious turmoil from the desire of Meremont to purchase Holland. Many of Holland’s salespeople were thinking of leaving. At this time, Holland was furnished with a Dun and Bradstreet report, which indicated the practice of Maremont was to achieve quick profits by sales or liquidations of companies acquired by him. Ds also got an income statement of Motor Products, Inc., showing a loss of $336,121.00 for the period in 1957. Upon this news, the directors of Holland authorized a repurchase of their own shares at a higher than market price. Ds authorized the purchase of all of Meremont’s holdings of Holland stock at a market premium. The stated reason for this repurchase was that it was to be used in a stock option plan. Ps claim that the repurchase was a mechanism to prevent a takeover by Meremont. The plaintiff claims that Ds breached their fiduciary duty of loyalty to shareholders by not considering the merger and issued the stock repurchase in order to protect their own positions on the board. The trial court found that Ds acted with the improper desire to maintain control. Ds appealed.