Nixon owned some nonvoting
stock in a corporation called E.C. Barton. The directors established an
employee stock ownership plan (ESOP) that allowed employees to buy and
sell their stock.
The directors did not
provide a similar mechanism to allow non-voting shareholders like Nixon
to buy or sell stock.
Nixon sued, arguing that the
directors had breached their fiduciary duty to minority shareholders.
The Trial Court found that the
decision to establish the ESOP was legal. Nixon appealed.
The Trial Court agreed that
the corporation had not provided substantially equal treatment to the
employee and non-employee shareholders.
However, the Court found
that establishing an ESOP advanced legitimate business objectives.
The Delaware Supreme Court
affirmed.
The Delaware Supreme Court
noted that under Delaware law, if a company was designated a close
corporation, then certain statutory
protection would apply to minority shareholders. (8 Del.C §342).
However, the Court found
that E.C. Barton was not designated as a close corporation in their articles of incorporation, and so the
statutory protections did not apply to them.
The Court found that in a
corporation, the shareholders did not owe a fiduciary duty to other
shareholders.
