PERLMAN V. FELDMANN
219 F.2d 173 (2nd Cir. 1955), cert.denied 349 U.S. 952, 75 S.Ct. 880, 99 L.Ed. 1277 (1955)
NATURE OF THE CASE: This is a derivative action brought by minority shareholders of Newport Steel Corp. to compel an accounting for, and restitution of, allegedly illegal gains which accrued to Ds as a result of the sale of their controlling interest in the corporation. Perlman (P) appealed an order, in which the court dismissed P's complaint for an accounting and restitution of allegedly illegal gains by Feldman (D).
FACTS: D was the dominant stockholder, the chairman of the board of directors, and the president of the corporation. Newport is a corporation designed to operate mills for the production of steel. The buyers, a syndicate organized as Wilport C. consisted of end-users of steel who were interested in securing a source of supply. Newport was a relative newcomer to the industry and was not in a position to compete profitably with other steel mills, during normal economic times, for customers outside their geographical area. The present action represents the consolidation of three pending stockholders' actions in which yet another stockholder has been permitted to intervene. Jurisdiction was based upon diversity of citizenship. The trial Court held that the rights involved in the sale, the determination of the allocations of steel production during wartime, were only those normally incident to the possession of a controlling block of shares, with which a dominant stockholder, in the absence of fraud or foreseeable looting, was entitled to deal according to his own best interest and that P failed to satisfy their burden of proof that the sale price was not a fair price for the stock per se. The lower court also found that the price paid, $20 per share for controlling stock, was fair, although over the counter market price had not exceeded $12 and the book value per share was $17.03. P appealed.
ISSUE:
RULE OF LAW:
HOLDING AND
DECISION:
LEGAL ANALYSIS:
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