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McDermott Inc. v. Lewis

Delaware Supreme Court

531 A.2d 206 (Del. 1987)

Facts

McDermott International (International) was a Panamanian corporation. International owned a subsidiary called McDermott Inc. (McDermott) (defendant), and the McDermott subsidiary was incorporated in Delaware. Although International was the parent and McDermott was the subsidiary, McDermott also owned substantial shares in International, its parent. During a reorganization of International, McDermott voted its International shares of stock to become a 92 percent-owned subsidiary of International. As a result, International’s public stockholders held approximately 90 percent of the voting power while McDermott held about 10 percent of the voting power. The purpose of the reorganization was to avoid United States taxation and to oppose third-party attempts to acquire control of International. Harry Lewis and Nina Altman (plaintiffs) were McDermott stockholders. Lewis and Altman filed consolidated suits to rescind the reorganization in Delaware court, arguing that under Delaware law a subsidiary is not allowed to vote its shares in the subsidiary’s parent corporation. However, International had no operations or contacts in Delaware, and International argued that the transaction was permitted by Panamanian law. The trial court granted partial summary judgment in favor of Lewis and Altman, and McDermott appealed.

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Holding and Reasoning (Moore, J.)

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