Opinion ID: 1992274
Heading Depth: 1
Heading Rank: 3

Heading: Reduction in Hall's Stock Holdings

Text: Emerald argues that even under this Court's construction of Article Fourteenth, Hall's transfer of stock to the Hall 1988 Children's Trust was an improper effort to deny the minority stockholders' rights. Hall argues that his actions were valid and designed to comply with the terms of the May certificate of incorporation. This Court will not tolerate the wrongful subversion of corporate democracy. Giuricich v. Emtrol Corp., Del. Supr., 449 A.2d 232, 239 (1982). See also Young v. Valhi, Inc., Del. Ch., 382 A.2d 1372 (1978). Therefore, we now examine the transfer which resulted in the reduction of Hall's stock holdings. At the time when the May Board first approved the merger, November 30, 1987, Hall did, in fact, own more than 30% of May's outstanding voting stock. Hall transferred 27% of the May stock, previously controlled by him, to the Hall 1988 Children's Trust. This trust is irrevocable [10] and vests absolute power to control the investment of its securities and any voting rights associated therewith, in cotrustees. The trustees are a Dallas rabbi and a Florida attorney selected by Hall. Emerald challenges their independence. [11] However, the co-trustees of the trust are imbued with fiduciary duties to act in favor of the cestui que trusts. The co-trustees would have the duty to vote in opposition to the merger, if in their view the merger were adverse to the interests of the cestui que trusts. There is no evidence in the record to suggest any agreement, or arrangement or understanding, between the co-trustees and Hall or the Hall corporations with respect to voting on the proposed merger, and there is no legal basis to assume that the co-trustees would act contrary to their fiduciary duties. Cf. Kaufman v. Belmont, Del. Ch., 479 A.2d 282, 287 (1984) (court will not assume that a director designated by dominant stockholder will fail to perform his fiduciary duties). We find that Hall's conveyance to the Hall 1988 Children's Trust effectively divested him of any ownership and control of those shares and reduced his ownership and control to 25% of the May stock. Cf. Sundlun v. Executive Jet Aviation, Inc., Del. Ch., 273 A.2d 282 (1970). At the time the stockholders voted on the proposed merger, March 11, 1988, Hall's interest in May remained unchanged at 25%. At the time the merger was put to the stockholders for a vote, Hall, who no longer owned a majority interest in May, was without the power or the ability to force the merger upon the stockholders. The stockholders had the ability, if they so desired, to prevent the consummation of the merger. The record indicates that a majority of the outstanding stock of the corporation was voted in favor of the merger with the Hall corporations. Since the supermajority vote provision did not apply, all that was necessary to ratify the merger proposal was the affirmative vote of a simple majority of the stockholders. See, 8 Del.C. § 251(c) (Supp.1988). The decision of the Court of Chancery enjoining the merger, due to an absence of an affirmative supermajority vote, is REVERSED.