Zahn v. Transamerica Corporation
United States Court of Appeals for the Third Circuit
162 F.2d 36 (3d Cir. 1947)
Zahn (plaintiff) was a holder of Class A stock in Axton-Fisher Tobacco Company (Axton-Fisher). Axton-Fisher had stock in three categories, preferred stock, Class A stock, and Class B stock. In 1941, Transamerica Corporation (Transamerica) (defendant) began purchasing Class A and Class B stock in Axton-Fisher. The purchases gave Transamerica control of the business affairs of Axton-Fisher, including 80 percent of the outstanding Class B stock. Transamerica also elected the board of directors of Axton-Fisher, which was comprised in large part of officers or agents of Transamerica. Axton-Fisher’s principal asset was leaf tobacco, the value of which suddenly rose sharply in 1943, at which point Transamerica, knowing of the increased value, allegedly “conceived a plan to appropriate the value of the tobacco to itself by redeeming the Class A stock at the price of $60 a share plus accrued dividends...and thereafter, the redemption of the Class A stock being completed, to liquidate Axton-Fisher.” This resulted in Transamerica gaining most of the value of the tobacco for itself by virtue of its status as a Class B stockholder because the redemption precluded Class A stockholders from participating in the liquidation. According to Zahn, the Class A stockholders did not know of the increased value of the tobacco and Transamerica made sure not to inform them of the value during the process. Zahn brought suit against Transamerica—because Transamerica controlled Axton-Fisher at the time—for breach of its fiduciary duty of loyalty to the stockholders of Axton-Fisher. The District Court of the United States for the District of Delaware found in favor of Transamerica. Zahn appealed.
Rule of Law
Holding and Reasoning (Biggs, J.)