Jedwab v. MGM Grand Hotels, Inc.

MGM Grand Hotels, Inc. (MGM) (defendant) entered into a merger agreement with Bally Manufacturing Corporation (Bally) to merge with a Bally subsidiary. The agreement also provided that all holders of MGM’s outstanding stock would be able to convert the stock into a right to receive cash; common stock was to be paid at $18 per share, and preferred stock was to be paid at $14 per share. MGM’s controlling shareholder, Kirk Kerkorian (defendant) helped negotiate the agreement and voted in favor of the merger. Kerkorian and his own corporation owned 69 percent of the common stock and 74 percent of the preferred stock. Therefore, his vote in favor of the merger was sufficient to achieve the requirement that the merger be approved by a majority vote. Following the vote in favor of the merger, Marilyn Jedwab (plaintiff) brought a class action on behalf of all MGM preferred-stock owners against MGM, MGM’s directors, and Kerkorian (defendants). Jedwab alleged that the merger would disadvantage owners of preferred stock because they would receive an unfair apportionment of the total amount paid to MGM for the merger. Based on this allegation, Jedwab argued that the defendants had breached their fiduciary duty of loyalty owed to the preferred stockholders by favoring one class of stock (common stock) over another (preferred stock). In response, MGM claimed that all fiduciary duties owed to the preferred stockholders were created by the expressed contractual terms stated in the certificate designating the preferred stock. Therefore, MGM argued that it did not owe the preferred stockholders a fiduciary duty because such a duty was not stated in the certificate.