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Zetlin v. Hanson Holdings, Inc. - 48 N.Y.2d 684, 421 N.Y.S.2d 877, 397 N.E.2d 387 (1979)

Rule:

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.

Facts:

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.

Issue:

Whether plaintiff is entitled to the premium share value that Flintkote paid to defendants for their controlling shares?

Answer:

No.

Conclusion:

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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