Lacos Land Company v. Arden Group, Inc.

Brief Fact Summary. Briskin, the main senior member of Arden Group, Inc. (D) threatened actions against the corporation if a new type of stock was not issued.

Synopsis of Rule of Law. If extortion from a fiduciary forced the adoption of a new class of stock, then that issuance is voidable.

Facts. Briskin was the main senior member of Arden Group, Inc. (D). A proposal was made to issue a new class of voting stock, one that Briskin would be the most interested in purchasing. The new stocks would maneuver control with Briskin, Briskin also made it known that he would interfere with business if the recapitalization was not passed. Following the approval, Lacos Land Company and several other shareholders filed suit seeking to enjoin the recapitalization.

Issue. If extortion from a fiduciary forced the adoption of a new class of stock, then is that issuance is voidable?

Held. (Allen, Chan.) Yes. If extortion from a fiduciary forced the adoption of a new class of stock, then that issuance is voidable. Fiduciaries have an obligation to act with the corporation’s interest in mind. While shareholders are not normally fiduciaries, Briskin is also a director and officer, which are normally fiduciaries. For an officer or director to use extortion to get a measure passed is improper. This breach of fiduciary duty makes the transaction approved by extortion voidable. An injunction is issued.

Discussion. Since individual shareholders often use coercion in corporate power struggles, coercion alone does not invalidate these transactions. Rather, it is when a fiduciary uses improper coercion that transactions are brought into question.