Brief Fact Summary. Plaintiff Zahn brought this suit after Defendant Transamerica Corp., as the majority shareholder of Axton-Fisher (“A-F”), decided to redeem Plaintiff’s Class A shares at $80.80 per share prior to the liquidation of A-F. The value of the shares would have been substantially higher at the point of liquidation.
Synopsis of Rule of Law. Unlike a director, a shareholder, majority or otherwise, is entitled to vote in a manner that is most beneficial to their interests.
The Court of Appeals of Kentucky quoted, the law has too much regard for the infirmity of human nature to allow a person to be subjected to the temptation of acting as an agent in a matter in which he has an interest adverse to his principal.View Full Point of Law
Issue. The issue is whether Plaintiff is entitled to equitable relief for a decision made by the majority shareholder that was otherwise allowable under the corporate charter.
Held. The court differentiated between a decision made by a shareholder and a director, and determined that the Plaintiff was entitled to equitable relief if, as Plaintiff maintains, the directors were acting on Defendant’s behalf when they decided to redeem Class A shares. Defendant is entitled as a shareholder to vote their interests, but their capacity as director (if the directors are acting as an extension of the majority shareholders) is limited because they owe a fiduciary duty to every shareholder.
Discussion. The important factor in this case was Defendant’s alleged control over the Board, and the fact that the decision to redeem the shares was a decision granted to the directors and not the shareholders.