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 Zetlin owned approximately 2% of the outstanding shares of Gable Industries, Inc., with defendants Hanson Holdings, Inc. (“Hanson”), and Sylvestri, together with members of the Sylvestri family, owning 44.4% of Gable's shares. The defendants sold their interests to Flintkote Co. for a premium price of $15 per share, at a time when Gable stock was selling on the open market for $ 7.38 per share. The 44.4% acquired by Flintkote represented effective control of Gable. Zetlin filed suit against Hanson and others contending that minority stockholders were entitled to an opportunity to share equally in any premium paid for a controlling interest in the corporation. The trial court granted Hanson’s motion for partial summary judgment, which did not allow minority stockholders to share in the premium paid. Zetlin sought review. The court on appeal affirmed the trial court, and Zetlin challenged the ruling.
Did the appellate court err in granting the partial summary judgment in favor of Hanson?
The reviewing court affirmed the appellate court. It determined that adoption of such a rule where minority stockholders were entitled to an opportunity to share equally in any premium paid for a controlling interest in the corporation would profoundly affect the manner in which controlling stock interests were transferred. It would require, essentially, that a controlling interest be transferred only by means of a tender offer to all stockholders. The court held that such a rule would be contrary to existing law and concluded that if so radical a change was to be effected it would best be done by the legislature.
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