Strassburger v. Earley

Ridgewood Properties, Inc. (Ridgewood) was a corporation with two shareholders that collectively owned 83 percent of Ridgewood’s stock: Triton Group, Ltd. (Triton) and Hesperus Limited Partners (Hesperus). In 1994 Ridgewood sought to increase its cash flow by repurchasing the stock owned by Triton and Hesperus. At the same time, Triton was going through bankruptcy and wanted to get out of Ridgewood. Before settling on the stock repurchase, Ridgewood’s board of directors (the board) (defendant) considered alternative means for raising funds and removing Triton from its controlling position, but those alternatives did not eliminate Triton as a Ridgewood shareholder. The board, led by Russell Walden, Ridgewood’s president and a director of the company, rejected the alternatives because they allowed Triton to remain a shareholder. Instead, the board approved the stock repurchases. To finance the repurchases, which cost approximately $9.5 million, the board sold Ridgewood’s principal assets. As a result of the repurchases, Walden became Ridgewood’s controlling shareholder, owning 55 percent of Ridgewood’s stock. Because Walden became the controlling shareholder of Ridgewood, no party could remove him from his position as president of the company. A Ridgewood shareholder (the plaintiff shareholder) (plaintiff) filed a shareholder derivative suit in the Delaware Court of Chancery seeking to rescind the repurchases, arguing that the transaction was unfair to Ridgewood’s remaining shareholders and that the board breached its fiduciary duty by approving a transaction that solely benefited Walden.