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Sandler v. Schenley Industries, Inc.

Court of Chancery of Delaware, New Castle County

March 13, 1951

SANDLER
v.
SCHENLEY INDUSTRIES, Inc., et al.

Action by Maurice Sandler against Schenley Industries, Inc., a corporation of the State of Delaware, and John L. Leban to enjoin the first named defendant from carrying out the provisions of a contract to sell stock to the second named defendant, wherein the plaintiff moved for a preliminary injunction. The Court of Chancery, Wolcott, C., held that the agreement was supported by consideration and was not inequitable, and that there was neither reasonable probability of plaintiff's ultimate success nor a possibility of irreparable injury.

Motion denied.

Page 607

[32 Del.Ch. 47] William Marvel (of Morford, Bennethum, Marvel & Cooch), of Wilmington, for plaintiff.

Aaron Finger (of Richards, Layton & Finger), of Wilmington, and George W. Whiteside, Charles Pickett and Alan S. Kuller, of New York City, for defendant Schenley Industries, Inc.

Howard Duane, of Wilmington, and Irving M. Gruber, of New York City, for defendant John L. Leban.

WOLCOTT, Chancellor.

The plaintiff is the owner of 83 out of a total of 4,500,000 shares of capital stock of Schenley Industries, Inc., a Delaware corporation (hereinafter [32 Del.Ch. 48] called ‘ Schenley’ ). The action is brought to enjoin Schenley from carrying out the provisions of a contract to sell 20,000 shares of its stock to John L. Leban (hereinafter called ‘ Leban’ ).

In order to dispose of the motion for preliminary injunction it is necessary to state the facts as they appear from the pleadings and affidavits. The legality of the contract under attack cannot be passed upon except in the light of the facts surrounding and leading up to it.

The business of Schenley and its subsidiaries is the sale of distilled spirits, pharmaceuticals, wines and beer. It is the second largest seller of distilled spirits in the United States and in its last fiscal year had total sales in excess of $500,000,000. The sale of distilled spirits comprised over 75% of Schenley's total sales and a larger percentage of its net profits of over $36,000,000. Leban is the operating head of Schenley's sale of distilled spirits business.

Leban has had 30 years experience in sales promotion. He was first employed by Schenley in 1935 and remained with it until 1943, at which time he was General Sales Manager. Throughout this period, his salary increased from $18,000 to a total compensation including bonus in 1942 of $54,200.

In 1943, he decided to go into the liquor business for himself and, in July of that year, left Schenley's employ to enter the wholesale liquor business in which he remained until October, 1947. He acquired interests in and managed wholesale liquor houses in Georgia and South Carolina, deriving income from them throughout that period of from $150,000 to $250,000 a year.

In October, 1947, Leban returned to Schenley's employ as a result of negotiations between him and Louis S. Rosenstiel, the Chairman of the Board of Schenley, its former president and its largest individual stockholder. Rosenstiel [32 Del.Ch. 49] had a thorough knowledge of Leban's abilities and he desired his return to Schenley because, in his judgment, Leban was the type of executive needed for the best interests of Schenley's business. Leban, however, was unwilling to leave his wholesale liquor business and return to Schenley as a mere salaried employee, but was willing to return if it could be arranged for him to acquire a proprietary interest in the business. He, accordingly, asked for an option to purchase Schenley stock as a condition of his return to Schenley's employ. Rosenstiel, while willing for Leban to acquire a substantial stock interest in Schenley, was opposed to an option arrangement. He insisted that Leban be committed to the purchase of whatever stock interest he was to acquire. Leban did not object to this. Rosenstiel also was equally insistent that Leban dispose of his interest in the wholesale liquor business in which he was then engaged, but Leban was unwilling to do this until he was assured of an interest in the Schenley business.

The final result of these negotiations, culminating in Leban's return to Schenley, was that Leban agreed to take no active part in the management of his wholesale liquor business until such time as he had acquired a proprietary interest in Schenley, at which time he agreed to dispose of his interest. Rosenstiel, on his part, agreed to use his best efforts to arrange for the purchase by Leban of a substantial block of Schenley stock after his return to Schenley's employ.

Leban returned to Schenley in October, 1947, and was made a vice-president and a director. At the end of 1948, he was made ...


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