David J. Greene & Company v. Schenley Industries, Inc.

Delaware Court of Chancery · 1971 · Corporations

281 A.2d 30 (Del. Ch. 1971)

Updated August 22, 2026

CorporationsMergersMinority stockholdersPreliminary injunctionsAppraisal8 Del. C. § 251controller mergerself-dealing

Facts

Glen Alden controlled Schenley through ownership of approximately 84% to 86% of Schenley's common stock and by selecting Schenley's directors and officers. It proposed a merger under 8 Del. C. § 251 in which minority holders of Schenley common would receive $5 cash plus a 7.5% fifteen-year subordinated debenture with $30 principal, and minority holders of Schenley $1.40 preferred would receive $4.50 cash plus a similar $27 debenture. Plaintiffs argued the debentures were speculative and that the offer undervalued Schenley, especially in light of prior 1968 prices and the sale of Buckingham Corporation. Discovery was not pressed after filing, and plaintiffs did not seek prompt injunctive relief until shortly before the scheduled stockholder meeting.

Issue

Should the court preliminarily enjoin a controller-sponsored merger where the controller stands on both sides of the transaction, but the record at this stage shows mainly a dispute over the value of the consideration and the minority stockholders have appraisal available? More specifically, had plaintiffs shown a reasonable probability of ultimate success or irreparable harm sufficient to justify a preliminary injunction?

Rule

When officers or directors stand on both sides of a transaction, they bear the burden of proving its entire fairness and the transaction is subject to careful judicial scrutiny. But in a merger where the minority's objection is essentially to the adequacy of price, and no fraud, blatant overreaching, constructive fraud, or deprivation of clear rights is shown, appraisal is the proper remedy and a preliminary injunction will not issue absent a reasonable probability of ultimate success and irreparable harm. In assessing fairness of value, market price established by free trading is the most significant factor, though other value measures may be considered.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

North Harbor Foods, Inc., a Delaware corporation based in Cleveland, is 85% owned by Lake Meridian Holdings, which appoints North Harbor’s directors and officers. Lake Meridian proposes a merger in which minority shares will be converted into cash plus 12-year subordinated notes; minority stockholders in Chicago sue to enjoin the vote, arguing mainly that the consideration undervalues their shares but alleging no deception, coercion, or diversion of assets.

How should a Delaware court most likely rule on the request for a preliminary injunction?

Explanation. The majority opinion applies careful scrutiny and places the burden on fiduciaries to show entire fairness when they stand on both sides, but it still denies a preliminary injunction where the minority’s objection is really to price and appraisal is adequate. Without fraud, blatant overreaching, constructive fraud, or loss of clear rights, the court treats the case as a valuation dispute better handled through appraisal rather than injunction.