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Gottlieb v. McKee

Court of Chancery of Delaware, New Castle County

July 7, 1954

GOTTLIEB
v.
McKEE et al.

Stockholder's derivative action brought by plaintiff charging certain directors of corporation and others with appropriating unto themselves corporate opportunity of corporation, and also charging defendant directors of corporation with mismanagement of corporation. Defendants moved for summary judgment and to dismiss. The Court of Chancery, Bramhall, Vice-Chancellor, held that conflicting allegations and affidavits raised fact questions as to whether opportunity had been appropriated and as to whether any action against defendants had been waived by stockholder ratification, requiring full presentation of facts and precluding summary judgment.

Order in accordance with opinion.

In stockholder's derivative action against certain directors of corporation, wherein such stockholder failed to produce certain income tax returns as ordered by trial court, burden was upon such stockholder to explain satisfactorily her failure to comply with such order.

Page 241

[34 Del.Ch. 538] Robert C. Barab, Wilmington, and Leonard I. Schreiber, New York City, for plaintiff.

[34 Del.Ch. 539] Edwin D. Steel, Jr., of the firm of Morris, Steel, Nichols & Arsht, of Wilmington, for defendants Venezuela Syndicate, Inc., H. Harper McKee, Richard B. Hand, A. Faison Dixon, Albert D. Brokaw, Leonard G. Hunt, and Charles R. Leonard.

Arthur G. Logan, of the firm of Logan, Marvel & Boggs, of Wilmington, for Northwest Nat. Gas Co., and pro se.

BRAMHALL, Vice-Chancellor.

This is a stockholder's derivative action brought by plaintiff on behalf of Venezuela Syndicate, Inc., hereinafter called ‘ Syndicate’, against certain directors of Syndicate and others charging them with appropriating unto themselves a corporate opportunity of Syndicate in connection with an investment made by defendants in Northwest Natural Gas Company, hereinafter called ‘ Northwest’ . Those defendants who are directors of Syndicate are also charged with mismanagement of Syndicate in connection with an investment made by Syndicate in the securities of Northwest. Defendants moved for summary judgment and to dismiss. The individual defendants will hereinafter be designated as ‘ defendants'.

The corporate opportunity of which complaint is made involved the participation of the defendants in the organization of Northwest for the purpose of having it engage in the transportation of natural gas from Canada for use in the northwestern part of the United States and Canada. It is alleged in the complaint that the enterprises for which Northwest was organized was within the field of activities of Syndicate; that the five defendants who were directors of Syndicate made an investment in the capital stock of Northwest without first making the same available to Syndicate; that Syndicate was persuaded to make an investment in Northwest on terms less advantageous than the investment made by defendants; that those defendants who were directors of Syndicate mismanaged Syndicate in connection with the investment which Syndicate made in Northwest. Plaintiff demands that the defendants account to Syndicate for this alleged breach of trust and for damage sustained by Syndicate in consequence of such improper and unlawful acts.

Defendants have filed a motion for summary judgment on the ground that there is no genuine issue as to any material fact and that [34 Del.Ch. 540] the defendants are entitled to a judgment of dismissal as a matter of law. Defendants have also filed a motion to dismiss

Page 242

on the ground that plaintiff has failed to comply with the direction of this court for the production of certain income tax returns.

The motion for summary judgment is based upon certain affidavits. It will be necessary in the consideration of this motion to set forth in substance the important allegations of fact contained therein.

On April 6, 1948 a notice was sent to all stockholders of Venezuela of an annual meeting to be held on April 20th. Enclosed with the notice was a proxy statement giving a statement of the transaction complained about by plaintiff in her complaint and a form of proxy. The circumstances of the organization of Northwest and the purpose of its organization are fully set forth in this statement. The investment of the defendants in Northwest and also the investment of Syndicate is also fully stated. In addition, Syndicate, prior to the annual meeting, filed a report with the Securities and Exchange Commission and also with the American Stock Exchange, setting forth the circumstances of the ...


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