Enterra Corp. v. SGS Associates

In 1982 SGS Associates (SGS) (defendant) acquired 5 percent of the outstanding common stock of Enterra Corporation (plaintiff). Enterra’s board of directors (the board) entered into a standstill agreement with SGS to create a stable relationship between the entities. The agreement prohibited SGS from acquiring more than 15 percent of Enterra’s outstanding stock, making an offer to acquire Enterra, or publicly announcing its desire to acquire Enterra. In 1984 SGS attempted to amend the standstill agreement to allow it to acquire more than 15 percent of Enterra’s outstanding stock and made an offer to acquire Enterra. The board rejected the amendment and the offer, and SGS made its offer public. The board filed a lawsuit against SGS in federal district court, seeking a permanent injunction preventing SGS from violating the standstill agreement. SGS filed a motion for a preliminary injunction requiring the board to consider the adequacy of SGS’s offer to acquire Enterra and, if the offer was rejected, to put the offer up for a shareholder vote. SGS argued that the board had a fiduciary duty to Enterra’s shareholders to consider the adequacy of any offer of acquisition and to allow the shareholders to decide whether to accept or reject the offer, and that the board breached this duty by entering into the standstill agreement.