Brief Fact Summary. Plaintiff, Francis Levien, brought suit as a minority shareholder of Sinclair Venezuelan Oil Company (“Sinven”) which was a subsidiary of Defendant, Sinclair Oil Corporation. Plaintiff alleged that Defendant caused Sinven to pay out excessive dividends, and that Defendant breached their contract with Sinven.
Synopsis of Rule of Law. A standard of intrinsic fairness will be applied in any self-dealing transaction by a parent corporation whose majority ownership places a fiduciary duty upon the parent corporation, but the transaction only be self-dealing if the transaction is to the detriment of minority shareholders.
Self-dealing occurs when the parent corporation, by virtue of its domination of the subsidiary, causes the subsidiary to act in such a way that the parent receives something from the subsidiary, to the exclusion of, and detriment to, the minority stockholders.View Full Point of Law
Issue. The issue is whether Defendant was improperly engaging in self-dealing when they issued excessive dividends and breached their contract with Sinven.
Held. Defendant did not engage in self-dealing by issuing large dividends but it did engage in self-dealing when they breached the agreement. Defendant complied with Delaware statute 8 Del.C. Section: 170, concerning the payment of dividends, and Defendant’s motives are not a factor when all shareholders benefit from the transaction (not self-dealing). However, the contract breach was to the detriment of Sinven and its minority shareholders with the positive effect being exclusive to Defendant, so the breach is self-dealing.
Discussion. Majority shareholders are held to a different standard than officers or directors such as in Lewis v. S.L & E, Inc. In Lewis, any conflict of interest between a director and the corporation is voidable unless the transaction is proven to be fair. In this case, a plaintiff has to prove that the majority shareholders enjoyed an exclusive benefit to the detriment of the minority shareholders before the burden is shifted to the defendants.