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Strasenburgh v. Straubmuller8/8/1995
The opinion of the court was delivered by EICHEN, J.S.C. (temporarily assigned)
Plaintiffs are minority stockholders of Wheaton Industries of Millville, New Jersey (Wheaton), a large, privately held, family-owned company with global affiliates and subsidiaries and an income of nearly one-half billion dollars per year. Wheaton is engaged in the glass, plastic, packaging, and cartage business. Most of the plaintiffs are fourth or fifth generation descendants of Dr. Theodore Corson Wheaton, who founded the company a century ago. Defendants were all either senior officers or directors of the company who, plaintiffs allege, represent only the interests of the majority stockholders, Dr. Wheaton's third generation descendants.
Plaintiffs brought this action to recover damages individually against defendants, charging that defendants abused their "positions of power" by "misappropriating and misusing corporate assets and opportunities" and by artificially deflating the value of their stock. In their complaint, plaintiffs allege that defendants "sought to reduce the value of the company's stock to . . . reduce [defendants'] estate and gift tax liability, and to make the company a less attractive acquisition target so as to perpetuate their control over the company and conceal their misconduct." Plaintiffs contend that the third generation stockholders are advanced in age and benefitted from the illiquidity of the stock, whereas the fourth and fifth generation minority stockholders suffered from the effects of defendants' scheme to artificially deflate the stock. The effect of this disparate impact, plaintiffs contend, is what permits them to sue defendants individually rather than in a derivative capacity.
An eight-count amended complaint (complaint) charges a variety of specific practices by defendants which plaintiffs contend constitute common law fraud (count I), negligent misrepresentation (count II), breach of fiduciary duties (count III), waste (count IV), federal RICO violations (counts V and VI) (stayed by the federal court), and New Jersey civil RICO violations (counts VII and VIII).
The complaint states, among other things, that defendants knowingly and recklessly made materially misleading statements in annual reports and other communications to shareholders with the intent that they be deceived. The complaint charges that defendants falsely asserted that a newly created shareholders' liquidity plan would give shareholders the liquidity necessary to meet their diverse financial needs; that defendants' communications to the shareholders to that effect were false and misleading because they failed to explain the true effect of the plan; and that as a result of these deceptive communications, defendants "duped a majority of the shareholders into approving the plan." The shareholder liquidity plan apparently gave the company a ninety-day right of first refusal before shareholders could sell their shares to persons not members of the Wheaton family. The complaint alleges reliance in the retention of their stock and in failing "to take action to remedy defendants' abuses."
The complaint alleges that defendants intentionally misrepresented that they would conduct a public offering of the company's stock to satisfy the shareholders' needs for liquidity and falsely promised that third party offers to purchase the company would be fairly entertained. Although several companies made attractive offers to buy Wheaton, including a British company, Bowater plc., plaintiffs contend defendants thwarted their efforts to acquire Wheaton by mischaracterizing the nature of the Bowater offer as a hostile takeover bid when it was not. The complaint alleges that defendants i
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