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.
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.