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Zahn v. Transamerica Corporation, 162 F.2d 36 (1943) p.handout


fiduciary obligation to minority shareholders


Lots of strange provisions between class A and class B stock:
Class A: redeemable at $60 per share; convertable into 1 share of B; Liquidation 2 times for B; No vote
Class B: Had the control vote

Tobacco prices skyrocketed (WWII was happening and everyone wanted tobacco). Shareholders did not know about the increase in the price of tobacco. Plaintiff in this case are Class A shareholders. P was complaining that if the Class A stockholders had been allowed to participate in the liquidation of Axton-Fisher and had received their respective shares of the assets, he and the other Class A stockholders would have received $240 per share in stead of $80.80. The P alleges that D tried to take an unfair portion away from the minority shareholders.


The court below granted the motion to to dismiss holding that Zahn failed to state a cause of action


Was there a breach of fiduciary duty to the minority shareholders by the majority.


The BOD should have notified the minority shareholders of the plan to convert and liquidate the shares. Had they done this the minority shareholders would have also had the opportunity to convert their shares.


If the A minority shareholders had know about the liquidation, they would have converted so they could have participated in the liquidation. There was no information given to the A shareholders. The A shareholders should have been told that the BOD planned to liquidate almost immediately after the conversion. The damage ought to be as if the A shareholders had converted. That way they would have got the same amount as the B shareholders did.


Now there is a 10 day notification period when shares are being converted.

Created on: Monday, October 25, 1999 at 12:04:01 (PDT)

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