Orban v. Field

1997 WL 153831 (1997)

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Orban v. Field

Delaware Chancery Court
1997 WL 153831 (1997)

Facts

George Orban (plaintiff) founded Office Mart Holdings Corp. (Office Mart). Orban was the largest holder of common stock in Office Mart, but preferred stockholders held the vast majority of the voting rights. Following financial difficulties, Office Mart underwent a recapitalization in which new shares of common and preferred stock were issued to creditors in exchange for forgiveness of debt. The effect of the recapitalization was to reduce the common stockholders’ share of voting power to less than 3 percent. Office Mart then entered into a merger with Staples, Inc. The merger agreement required the approval of 90 percent of each class of outstanding stock in Office Mart. Orban still held more than 10 percent of the common stock, putting him in a position to block the merger. Orban objected to the merger because Office Mart’s preferred stockholders were entitled to liquidation preferences over the common stockholders, and the consideration involved was insufficient to provide the common stockholders with any proceeds. The Office Mart board attempted to negotiate with Orban, but without success. The board then effectuated a series of steps that increased the shares of common stock and allowed the preferred stockholders to acquire enough common stock so that Orban’s share declined to less than 10 percent. The vote went forward, and the common stockholders received no consideration in the resulting merger. Orban brought suit against various Office Mart board members (defendants) in the Delaware Chancery Court, alleging they had breached a fiduciary duty of loyalty to the common stockholders. The board members countered that everything they had done was legal and in the best interests of Office Mart. The board members moved for summary judgment.

Rule of Law

Issue

Holding and Reasoning (Allen, J.)

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