Lehrman v. Cohen

222 A.2d 800 (1966)

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Nature of the Case

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Facts

Giant Food was incorporated in Delaware by Cohen (D) and Samuel Lehrman, the father of Jacob Lehrman (P). Each family owned equal amounts of voting stock and was able to elect two members to the 4-person board. After Samuel's death, each of his children inherited part of his stock and fought amongst themselves over the stock transfers. To settle the affairs for the benefit of the company, D agreed to repurchase all of the stock from P and his siblings and then re-sell it to P. P was to acquire all of the outstanding Class AL stock, thereby vesting in him voting power equal to that held by the Cohen family. An essential part of the arrangement was the establishment of a fifth directorship to obviate the risk of deadlock which would have continued if the equal division of voting power between AL and AC stock were continued. The Company's certificate of incorporation was amended to create a third class of voting stock, designated Class AD common stock, entitled to elect the fifth director. Article Fourth of the amendment to the certificate of incorporation provided for the issuance of one share of Class AD stock, having a par value of $10. The holder of Class AD common stock was entitled to all of the rights and privileges pertaining to common stock except that the holder of AD stock was not be entitled to receive any dividends declared and paid by the corporation, and was not be entitled to share in the distribution of assets of the corporation upon liquidation or dissolution either partial or final, except to the extent of the par value. In the election of Directors, AD stock had the right to vote for and elect one of the five Directors hereinafter provided for. In December 1959, 200,000 shares of non-voting common stock of the Company were sold in a public issue for over $3,000,000. AD stock was described as nonparticipating stock, and the only purpose for the provision and issuance of such stock was to prevent a deadlock in case the Directors elected by the Common Stock AC and the Directors elected by the Common Stock AL cannot reach an agreement. Joseph Danzansky, counsel to the company, was unanimously elected to this position and served without incident until 1964 when he was elected President by a 3-2 margin. ' P charges that the AD stock resulted in an arrangement illegal under the law of Delaware because it created a voting trust that was not limited to a ten-year period as required by the Voting Trust Statute.