Coggins v. New England Patriots Football Club, Inc.

492 N.E.2d 1112 (1986)

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Nature of the Case

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Facts

Sullivan (D) purchased an AFL franchise. Sullivan paid $25,000 for the franchise. Four months later he organized a corporation and then contributed his AFL franchise to the corporation while nine others contributed $25,000 each, and in return, each got 10,000 shares of voting common stock. Four months later, the corporation sold 120,000 shares of nonvoting common stock to the public at $5 per share. Up to April 1974, Sullivan had effective control over the corporation and owned 23,178 voting shares and 5,499 nonvoting shares. However, Sullivan was ousted as from the presidency of the corporation. By November 1975, Sullivan got control of all 100,000 voting shares at a price of $102 per share and then renamed the club to the New England Patriots Football Club, Inc. To finance his coup, Sullivan borrowed $5,348,000 from the Rhode Island Hospital National Bank and the LaSalle National Bank of Chicago. As a condition, he was to use his best efforts to repay the loans and thus it was necessary to the eliminate the interests of the nonvoting shares. A new corporation was formed with the name New Patriots Football Club (D). A merger agreement was executed that provided that the nonvoting stock would be exchanged for cash at $15 per share and then the name would be changed back to the old name used before. The law required the approval of the merger by a majority vote of each affected class of stock. The nonvoting shareholders approved the merger. It was finished. Coggins (P) owned ten shares of nonvoting stock. P was upset at what was going on and sued. The trial judge found in favor of P's class but determined that the merger should not be undone and ruled that Ps were entitled to rescission damages. P appealed.