Giuricich v Emtrol Corp.

Emtrol Corporation was created by two persons who were to be officers of Emtrol (the officers) and by Continental Boilerworks, Inc. (Continental) (defendant). The officers would supply technical expertise for Emtrol, and Continental would supply the capital. Upon the creation of Emtrol, Continental received 80 percent of the shares, and the officers received 20 percent of the shares. However, if Emtrol were to become profitable, the officers each would be able to obtain an additional 15 percent of the stock. Because Continental owned more shares, the agreement between the parties granted Continental control of Emtrol’s board of directors. Once Emtrol was profitable, the officers exercised their options to purchase the stock, and together they then owned 50 percent of Emtrol. The officers requested that the board of directors be restructured to reflect their 50 percent interest in Emtrol, but that request was denied. Following this, officers and Continental had many disputes over how to run Emtrol, including Continental expanding the board of directors from five members to seven and appointing familial relatives of people who worked for Continental to fill those positions, causing the officers to be outvoted five to two. The officers filed suit, requesting that the chancery court appoint a custodian due to the deadlock of the shareholders. The chancery court denied the officers’ request, finding that although there was a shareholder deadlock preventing the election of successor directors, there was no irreparable injury to the officers’ interests as stockholders and Emtrol had not suffered because of the shareholder deadlock. The officers appealed to the Delaware Supreme Court. Continental argued their goal in maintaining control of the board of directors was to have the upper hand in compensation negotiations with the officers.