Facts

Lacos Land Company (plaintiff) owns 4.5 percent of Class A Common Stock in Arden Group, Inc. (defendant). Briskin is Arden’s principal shareholder and chief executive officer. Due to Briskin’s management of the company, its stock price has risen greatly. Under a proposed recapitalization of the company, a new class of stock called Class B Common Stock would be created, which would possess ten votes per share, as compared to Class A’s one vote per share. As a class, holders of Class B Common Stock would also be entitled to elect 75 percent of Arden’s board of directors. The new stock would be available on a share-for-share basis to Arden’s Class A Common Stock holders, though Arden admits the new class of stock is designed mainly to be attractive to Briskin. Briskin proposed the idea of a dual common stock structure to the board of directors, which established a committee to consider the matter. The committee did not retain independent counsel or financial advice, but prepared a report on the proposal for the board of directors. The board approved the plan, and issued a proxy statement to stockholders describing the proposed charter amendments. The proxy statement outlined Briskin’s position that he would not support any transactions that might make the company vulnerable to a hostile takeover, even if such transactions were in the company’s best interests, unless steps were taken to secure his voting position in the company. Arden’s shareholders authorized the proposed recapitalization at their annual meeting, where more than half of the votes in favor were voted by Briskin, his family, or by a trustee as directed by Arden’s management. Lacos now seeks to enjoin to issuance of this new stock.

Rule of Law

Issue

Holding and Reasoning (Allen, C.)