Leland Stanford Jr. University v. National Supply Co., 46 F. Supp. 389 (N.D. Cal. 1942)

McCutchen, Olney, Mannon & Greene, of San Francisco, Cal., for plaintiffs.

Chickering & Gregory, of San Francisco, Cal., for defendant.

WELSH, District Judge.

This Court is of the opinion that the plaintiff, Leland Stanford Junior University, was deprived of the opportunity of timely exercising its legal right to demand and receive the full cash value of its stockholding in the National Supply Company of Delaware, under circumstances in evidence which amounted to a breach of trust on the part of the directors and officers of that company towards its stockholders; and upon this ground judgment is ordered for plaintiffs in the amount of the value of its stock at the time of the consolidation of the National Supply Company of Delaware with its subsidiary, Spang Chalfant Co., to form the defendant company.

The directors of National Supply Company of Delaware solicited of its stockholders their approval and acceptance of a plan of consolidation with Spang Chalfant Co., having the same president and secretary and majority directors as those of National Supply Company of Delaware, which would operate to drastically alter their property rights as stockholders in the old corporation. They pointed out all of the advantages to be gained by such consolidation in a letter to the stockholders outlining the plan, but failed therein to advise the stockholders who might not wish to assent thereto, that they must under the laws of Delaware and within a certain prescribed time, dissent therefrom and demand the value of their stock or thereafter be bound by the act of the majority stockholders voting on the plan. Their conduct in this regard did not amount to a full and fair disclosure of all the facts which the stockholders, towards whom they occupied a confidential relationship, were entitled to know. And the breach of a fiduciary duty on the part of the directors in this regard, misled plaintiff in failing to make its demand for the cash value of its stock within the statutory time outlined by Delaware law, to its detriment, for which it is entitled to be made whole in this action.