Thorpe v. Cerbco, In

676 A.2d 436 (1996)

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Nature of the Case

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Facts

Cerbco (D) was a holding company with voting control over three subs. One of these subs was profitable. The continued profitability of this sub was in doubt because its license was about to expire. D had two classes of stock (A with one vote and B with 10 votes per share). Class B shares were also empowered to elect 75% of the board. The Erikson brothers constituted the controlling groups of shareholders owning 78% of Class B and 7.6% of Class A outstanding stock. Eriksons had control of D. INA the licensee to D's sub explored the possibility of acquiring one of its sublicenses. D's sub was a target candidate. INA met with Eriksons, and at first, it did not know of D's capital structure. Almost immediately Eriksons proposed to sell their controlling interest in D to INA. Eriksons did not inform anyone else of the INA offer to buy the sub but did inform everyone that INA was interested in buying their stock; they denied any such interest of INA solely being interested in the sub. Thorpe (P) launched a demand that the proposed transaction be rejected or that Eriksons provide an accounting for the control premium associated with the sale of their Class B shares. Various proposals and countermeasures were rejected by Eriksons. The Chancellor found that Eriksons did not act appropriately when they were informed of INA's interest in the sub. The lack of candor and negotiations on their own behalf constituted a breach of loyalty which the Eriksons owed as directors of the corporation. Despite these findings, no damages were awarded as D's actions were wholly fair; no sale had occurred, and the Eriksons had the right to veto any corporate change constituting the sale of substantially all of the corporation's assets. As such, Eriksons could not be penalized for their breach of duty.