Kaplan v. Goldsamt

Robert S. Goldsamt (defendant) was the founder of American Medicorp, Inc. (Medicorp), as well as a member of its board and a major shareholder of the corporation. Medicorp shares traded on the New York Stock Exchange for as much as $40 a share at its zenith. After years of rapid acquisition of hospitals, Medicorp’s business focus switched from rapid expansion through acquisition to improving the day-to-day operations of its hospital properties. The share price of Medicorp declined at one point to less than $2 a share. In this environment, Goldsamt believed that the company’s stock price was artificially low and that Medicorp should invest all available resources into repurchasing its stock. Other board members believed that corporate assets should be used to invest in retaining key personnel. The division between Goldsamt and the other board members become increasingly vitriolic and hostile until at a board meeting in 1976, Goldsamt was asked to name the price per share that Medicorp should consider if it went forward with a buyback of its stock. Goldsamt conveyed that he would be willing to sell his Medicorp stake of 550,000 shares for $10 a share. The board moved forward with an offer to purchase Goldsamt’s shares and confirmed Goldsamt’s willingness to sign a consulting and noncompetition agreement. The board retained an investment-banking firm to consider Goldsamt’s $10-per-share price. The investment bank determined that to acquire 550,000 shares outside of Goldsamt’s block would require a tender offer of $9 and additional fees and expenses of 50 cents per share. A second investment bank concurred with this assessment. Consistent with the desire of the New York Stock Exchange and out of an abundance of caution, the board submitted a plan to purchase Goldsamt’s stock for $5,225,000 and offered a five-year consulting and noncompetition agreement for $275,000 to the shareholders for approval. The arrangement was approved, with over 80 percent of the shares voting in favor. Charles Kaplan (plaintiff), a Medicorp shareholder, filed a derivative suit, arguing that Goldsamt had used his position as a major shareholder of Medicorp to pressure the Medicorp board into purchasing his shares at a price unfair and harmful to the corporation. Kaplan further alleged that the proxy statement that had been sent to shareholders in anticipation of the shareholder vote on the purchase of Goldsamt’s shares was materially false and misleading and that the price paid to Kaplan for his shares was excessively high and a waste of corporate assets.