Sugarman v. Sugarman

In 1964, Statler Corporation was formed following a merger. Statler’s stock was owned in equal amounts by brothers Joseph, Samuel, and Myer Sugarman. Statler was managed by Myer Sugarman; his son, Leonard Sugarman (Leonard) (defendant); and Samuel’s son, Hyman Sugarman (Hyman). However, by 1974, Leonard had control of the corporation by acquiring almost 50 percent of the stock and leveraging the 8 percent owned by his personal counsel. In 1981, Hyman’s children (plaintiffs) filed a complaint against Leonard on the ground that he had breached his fiduciary duty owed to Statler and to Hyman as minority shareholders. Hyman’s children sought derivative recovery on Statler’s behalf and sought direct recovery on the ground that Leonard had attempted to freeze out the minority shareholders’ interests. The district court found that Leonard had deprived Hyman of the salary increase and the $75,000 pension he had given to Myer and that Leonard had offered to buy Hyman’s children’s stock at $3.33 per share, which was grossly inadequate to the book-value price of $16.30 per share. Based on the unequal compensation and the inadequate price offer, the district court held that Leonard had attempted to freeze out the minority shareholders. The district court awarded Hyman’s children approximately $537,925 after calculating the improper amount paid with interest and the cost of litigation expenses. Leonard appealed.