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Kirschner Bros. Oil v. Natomas Co. - 185 Cal. App. 3d 784, 229 Cal. Rptr. 899 (1986)

Rule:

While breach of fiduciary duty is a question of fact, the existence of legal duty in the first instance and its scope are questions of law.

Facts:

In similar consolidated actions filed against two corporations involved in a reorganization plan and the director of one of the corporations, plaintiffs, as preferred shareholders of Natomas, one of the corporations, sought to enjoin the implementation of a proposed reorganization plan as well as damages for the breach of a fiduciary duty by the corporate directors. After a preliminary injunction was denied, the reorganization was effected. In accordance with the reorganization plan, each preferred share of Natomas in which the plaintiffs had their preferred shares was exchanged for a share of the preferred stock of the other corporation. Subsequently a summary judgment was entered in favor of Natomas from which plaintiffs appealed. The Court of Appeals affirmed the summary judgment. 

Issue:

Did Natomas breach its fiduciary duties to the preferred shareholders?

Answer:

No

Conclusion:

The court held that Natomas did not breach its fiduciary duties to the preferred shareholders, did not deny the preferred shareholders their statutory right to vote on the reorganization plan and did not deprive them of voting and other rights granted under the certificate of determination. Since the reorganization was structured as a "reverse triangular 'phantom' merger" the existing corporate entity was preserved and the preferred shareholders had no absolute rights either under the law of California or under the certificates of determination, which were silent on the matter, to the continued existence of a public market for their preferred shares. The court further held that the rights of the preferred shareholders were respected and that Natomas did not violate either the terms of Corp. Code, § 1201 concerning shareholders' approval of the principal terms of a reorganization plan or the certificates of determination of the preferred shareholders. 

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