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HB Korenvaes Inv., L.P. v. Marriott Corp. - Civil Action No. 12922, 1993 Del. Ch. LEXIS 105 (Ch. July 1, 1993)

Rule:

The remedy of preliminary injunction is designed to prevent the occurrence of irreparable injury to plaintiff that threatens to occur before the merits of the claim can be heard and determined at trial. The remedy is a strong one as it entails a court exercising coercive judicial power before it has had an opportunity to hear all of the relevant evidence. Thus, it is granted cautiously. Where a plaintiff shows both a reasonable probability of success on the merits of the claim and the threat of irreparable injury and where the court concludes that granting the remedy threatens less harm to defendant than denying it does to plaintiff, the court will issue a preliminary injunction.

Facts:

Stockholders sought to enjoin the planned reorganization of businesses that were owned by defendant corporation and to enjoin a special dividend that would have resulted from the reorganization. The stockholders asserted that the proposed special dividend would have left the corporation endangered by a disproportionate debt burden and would have deprived the stockholders of certain rights that were created by the stock agreement. 

Issue:

Should the injunction be granted?

Answer:

No

Conclusion:

The court denied the stockholders' petition for injunctive relief. The court held that the stockholders failed to show a reasonable likelihood of success on the merits of their claims. The court found that the corporation's directors owed no fiduciary duty to the stockholders. The agreement explicitly provided for special dividend, and thus, there was no duty not to transfer substantial assets out of the corporation. While the suspension of dividends exerted a powerful influence upon the decision whether the stockholders would exercise their rights to convert, it did not constitute a violation of any implied right of good faith. The stockholders failed to prove that the net value of the subsidiary after distributing the special dividend was likely to be insufficient to maintain the value of the conversion right. The stockholders failed to show that they could prove the essential elements of their fraud claim.

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