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Warehime v. Warehime

Pennsylvania Supreme Court
761 A.2d 1138 (2000)


Facts

Alan Warehime was the chairman and chief executive officer of Hanover Foods Corporation (HFC) from 1956 to 1989. In 1988, Alan Warehime established two trusts containing the majority of HFC’s voting stock. Most of these shares were in a trust for his three children: John Warehime (defendant), Michael Warehime (plaintiff), and Sally Warehime Yelland (plaintiff). The trusts were set to expire 10 years after creation, in 1998. Originally, Alan served as the sole voting trustee for both trusts. In 1989, John became the chairman and chief executive officer of HFC. Alan died in 1990, and John then became the sole voting trustee for both trusts. John used his voting power to change HFC’s voting structure to give himself the ability to control the election of HFC’s board of directors. Michael and Sally expressed dissatisfaction with John’s operation of HFC that, in turn, caused uncertainty over HFC’s future. As a result, HFC was unable to raise needed equity capital. In 1996, several HFC board members formed a committee to address the uncertainty. The committee recommended that HFC amend its articles of incorporation to stabilize its governance structure. The amendment would mean issuing Series C stock that would be: (1) controlled by disinterested directors and (2) entitled to 35 votes per share to resolve any dispute among the Warehime family regarding the election of a board of directors or other related matters for five years. In the absence of a dispute, the Series C stock would be non-voting. However, in addition to stabilizing HFC’s governance structure, the proposed amendment would also effectively extend the time that John’s elected directors would retain control of HFC. In turn, this would also extend John’s partial control of HFC beyond the 1998 expiration date of the voting trusts. Michael and Sally sued John, seeking an injunction to prohibit John from voting the trust shares for the amendment. The plaintiffs alleged that voting for the amendment would breach John’s duty of loyalty to the trusts’ beneficiaries. The trial court denied the injunction. The Pennsylvania Superior Court reversed the trial court and found that the plaintiffs were entitled to an injunction. John then appealed to the Pennsylvania Supreme Court.

Rule of Law

Issue

Holding and Reasoning (Flaherty, C.J.)

Concurrence (Saylor, J.)

Dissent (Nigro, J.)

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