Kahn v. Roberts

Thomas Roberts, Jr. (Roberts Jr.) (defendant) and Thomas Roberts, III (Roberts III) (defendant) were among the directors of DeKalb Genetics Corporation (DeKalb), an agricultural company in which they and their families owned more than one-third of the stock. Roberts III hoped to become executive manager of the division in which he was employed, but he was not selected. Around the same time, Roberts III was forced to resign over apparent irregularities revealed by an audit, though he did not immediately step down from his director position. Dissatisfied with DeKalb, Roberts Jr. and Roberts III expressed their interest in selling their stock back to the company. The other directors (defendants) agreed to the repurchase of Roberts Jr.’s and Roberts III’s Class A stock, which carried voting rights. In a letter to DeKalb’s shareholders, the chairman of the board announced the repurchase. Alan Kahn (plaintiff), one of DeKalb’s shareholders, brought suit against the directors in the Delaware Court of Chancery, arguing that they had failed to disclose material facts about the repurchase, including the underlying reason for the transaction and the debt that would be incurred as a result. The court applied the business-judgment rule, a relatively low standard of review, and found that the directors were under no duty of disclosure because shareholder action was not implicated in the repurchase decision. Kahn appealed. The Delaware Supreme Court granted certiorari.