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Keywords

defendantdamagesfiduciarycorporate lawcorporationfiduciary dutyrescissionnovation

defendantfiduciarytrustwillcorporation

Related Cases

Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150

Facts

Benihana of Tokyo, Inc. (BOT) brought an action against Benihana, Inc. and BFC Financial Corporation (BFC) regarding the issuance of $20 million in preferred stock to BFC. BOT claimed that this transaction diluted its interest in Benihana and violated Delaware law and the company's certificate of incorporation. The court examined the authority of the board to issue preferred stock, the independence of the directors, and the motivations behind the transaction, ultimately finding that the board acted within its rights and did not breach any fiduciary duties.

Initially, Rocky Aoki owned 100% of BOT and thereby indirectly controlled Benihana. In 1998, after he pled guilty to insider trading charges unrelated to Benihana, Rocky Aoki put his 100% ownership interest of BOT into the Benihana Protective Trust (the “Trust”) to avoid regulatory problems regarding Benihana's liquor licenses stemming from his status as a convicted felon.

Issue

Did the board of directors of Benihana, Inc. act improperly in approving the issuance of preferred stock to BFC Financial Corporation, thereby violating fiduciary duties and Delaware law?

Rule

The court applied principles of Delaware corporate law, including the authority of the board to issue preferred stock under the certificate of incorporation and the Delaware General Corporation Law, as well as the standards for evaluating breaches of fiduciary duty.

The Board had authority under Benihana's Certificate of Incorporation and the applicable provisions of the DGCL to issue the preferred stock with preemptive rights that is the subject of the BFC Transaction.

Analysis

The court found that the board had the authority to issue preferred stock and that a majority of the directors were informed, disinterested, and independent. The court also determined that the board did not have an improper purpose in approving the transaction and that the directors did not breach their fiduciary duties of loyalty and care. The court emphasized that the issuance of preferred stock was a valid exercise of the board's business judgment, supported by the need for capital to fund the company's renovation plan.

The court finds that a majority of the informed, disinterested and independent directors approved the transaction; the directors did not have an improper purpose of entrenchment; the directors did not breach their fiduciary duties of loyalty and care; and the BFC Transaction was a valid exercise of the Board members business judgment.

Conclusion

The court concluded that the issuance of preferred stock to BFC was valid and that BOT's claims for rescission and damages were denied. The court entered judgment in favor of the defendants.

Accordingly, the Court will deny BOT's claims for relief and enter judgment in favor of Defendants.

Who won?

Defendants Benihana, Inc. and BFC Financial Corporation prevailed in the case because the court found that the board acted within its authority and did not violate any fiduciary duties.

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