Law School Case Brief
Zetlin v. Hanson Holdings, Inc. - 48 N.Y.2d 684, 421 N.Y.S.2d 877, 397 N.E.2d 387 (1979)
Recognizing that those who invest the capital necessary to acquire a dominant position in the ownership of a corporation have the right of controlling that corporation, it has long been settled law that, absent looting of corporate assets, conversion of a corporate opportunity, fraud or other acts of bad faith, a controlling stockholder is free to sell, and a purchaser is free to buy, that controlling interest at a premium price.
Plaintiff, Lev Zetlin, brought this action to receive the premium price for his minority shares that defendants, Hanson Holdings, Inc. et al., received for their controlling shares. Plaintiff owned 2% of Gable Industries, Inc. Defendants owned 44.4% of the outstanding shares which they sold to Flintkote Co. for $15, giving Flintkote the controlling majority. The open market value of the shares was $7.38 per share. Plaintiff brought this action, believing all of the Gable shareholders were entitled to the premium paid by Flintkote.
Whether plaintiff is entitled to the premium share value that Flintkote paid to defendants for their controlling shares?
The Court of Appeals of New York declined to adopt the plaintiff's proposed rule which would effectively mandate that a purchaser give a tender offer to all shareholders when they are only seeking a controlling interest in a corporation. The rule change should be provided by the legislature and not the courts, but the current law has never held that such a policy should be in place. Partial summary judgment for respondent corporation and others was affirmed because appellant minority shareholder proposed adoption of a rule requiring a tender offer for the sale of controlling shares, that would be such a radical change, it would be best done by the legislature.
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