Nixon v. Blackwell

626 A.2d 1366 (Del.1993)

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Nature of the Case

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Facts

Ps are 14 minority stockholders of Class B, nonvoting stock of E.C. Barton & Co (the Corporation). The individual defendants are the members of the board of directors (the Board or the directors). The Corporation is also a defendant. Ps collectively own only Class B stock and own no Class A stock. Their total holdings comprise approximately 25% of all the common stock outstanding as of the end of fiscal year 1989. The board consisted of 10 individuals who either are currently employed or were once employed, by the Corporation and at the time of the suit, they collectively owned 47.5% of all the outstanding Class A shares. The corporation is a non-public, closely held corporation. It has two classes of common stock: Class A voting stock and Class B nonvoting stock. Mr. Barton, who was survived by his second wife, his daughter, and granddaughter from his first marriage, held all of the stocks. 49% of the Class A stock was bequeathed to 8 of his employees, the remaining 51% along with 14% of Class B stock were placed in the trust for the same 8 people. 61% of Class B stock was bequeathed to Mrs. Barton. The daughter and granddaughter received 21% of Class B stock. The nonvoting stock bequeathed to Mr. Barton's family constitutes 75% of the Corporation's total equity. Later, Mrs. Barton gave certain shares of Class B stock to her three children. She sold the remaining shares to the Corporation at a price of $45 per share. The transaction left Mrs. Barton's children with 30% of the outstanding Class B stock. Her children are the only nonemployee Class B stockholders. Then, the Corporation purchased all of the Class B stock at $45 per share from the trust of Barton's daughter and granddaughter. The Corporation occasionally offered to buy Class B stock from nonemployee stockholders through a series of self-tender offers. Only one daughter accepted the offer. In November 1975, the Corporation established an ESOP designed to hold Class B stock for the benefit of eligible employees of the Corporation. Under the plan, terminating and retiring employees are entitled to receive their interest in the ESOP by taking Class B stock or cash in lieu of stock. Thus, the ESOP provides employee Class B stockholders with a substantial measure of liquidity not available to nonemployee stockholders. The Corporation also purchased certain key man life insurance policies with death benefits payable to the Corporation. These policies provide a further degree of liquidity. Ps charged the Ds with breaching their fiduciary duties by pursuing a discriminatory liquidity policy that favors employee stockholders over nonemployee stockholders through the ESOP and key man life insurance policies. The Vice Chancellor found for the Ps. Ps were awarded attorney's fees and costs in a subsequent order entered on May 20, 1992.