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Keywords

plaintiffdefendantpartnershipcorporationbad faith

defendantmotioncorporation

Related Cases

In re Rexene Corp. Shareholders Litigation, Not Reported in A.2d, 1991 WL 77529, Fed. Sec. L. Rep. P 96,010, 17 Del. J. Corp. L. 342

Facts

Rexene Corporation, through its subsidiaries, manufactures thermoplastic and petrochemical products. In April 1988, a leveraged buyout led by three limited partnerships acquired Rexene for $456 million. Following the buyout, Rexene issued additional shares in a public offering and later approved a recapitalization plan that included a special dividend of $7.00 per share. The minority stockholders claimed that this plan was designed to benefit the original buyout participants at the expense of public stockholders, particularly as the company later suspended its quarterly dividend due to financial difficulties.

The gravamen of the Complaint is that the recapitalization plan, particularly the Special Dividend, was designed to benefit the original leveraged buyout participants at the expense of the public minority stockholders.

Issue

Whether the claims of waste and self-dealing could be brought directly by the minority stockholders or were derivative in nature.

The first issue is whether the waste and self-dealing claims may be brought directly, derivatively or both.

Rule

Claims are derivative when the corporation is harmed by alleged wrongdoing and stockholders are indirectly injured. A stockholder has an individual claim only when they sustain a special injury separate from that suffered by other shareholders.

Where the corporation is harmed by alleged wrongdoing and the stockholders are indirectly injured, the claim is derivative in nature.

Analysis

The court analyzed whether the claims of waste and self-dealing were derivative or individual. It concluded that the minority stockholders' claims were derivative because the alleged injury stemmed from the financial condition of Rexene, which was indirectly affected by the special dividend. The court found that the plaintiffs did not adequately demonstrate that the directors acted in bad faith or that the dividend constituted waste of corporate assets.

Using these standards, claims of waste, self-dealing and improper payment of excessive dividends have been held to be derivative and not individual.

Conclusion

The court dismissed the plaintiffs' claims, ruling that they were derivative and did not satisfy the requirements for such claims under Chancery Court Rule 23.1. The court also found that the disclosure claims were insufficient to state a claim.

Based on the foregoing, Counts I-VI, VIII and IX must be dismissed.

Who won?

Defendants prevailed in the case because the court found that the claims brought by the minority stockholders were derivative and did not meet the necessary legal standards for direct claims.

Defendants' motions to dismiss the Complaint are granted.

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