Lehrman v. Cohen

Supreme Court of Delaware · 1966 · Corporations

222 A.2d 800 (1966)

Updated August 22, 2026

CorporationsVoting trustsClasses of stockDirector deadlockDelegation of board authority8 Del. C. § 2188 Del. C. § 151(a)8 Del. C. § 141(a)

Facts

Giant Food Inc. had long been controlled equally by the Cohen and Lehrman families through two classes of voting stock, Class AC and Class AL, each entitled to elect two directors to a four-member board. To settle a family dispute and avoid future board deadlock, the corporation amended its certificate in 1949 to create a single share of Class AD stock, with voting rights to elect a fifth director but no dividend rights and no liquidation rights beyond return of par value. The share was issued to Joseph B. Danzansky, who elected himself as the fifth director and served in that role until 1964. Plaintiff later challenged the arrangement as an unlawful voting trust, as illegal voting-only stock, and as an improper delegation of board authority to a deadlock-breaking director.

Issue

Whether the Class AD stock arrangement constituted an illegal voting trust under Delaware's Voting Trust Statute, whether Delaware law permits a class of stock with voting rights but no substantial participating proprietary rights, and whether the arrangement unlawfully delegated directors' statutory duties to the AD director.

Rule

Under the Abercrombie criteria, a voting trust requires at least that voting rights be separated from the other attributes of ownership of the stock; if existing stockholders retain full power to vote their own shares, dilution of voting power through creation of a new class of voting stock does not create a voting trust. Delaware law under 8 Del. C. § 151(a) permits classes of stock with such voting powers and participating rights as are stated in the certificate of incorporation, including stock having voting rights only or property rights only. Under 8 Del. C. § 141(a), stockholders may, through the certificate of incorporation, provide for a lawful management structure such as a deadlock-breaking fifth director, and that is not an unlawful delegation by directors themselves.

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Maple Transit Holdings, a Delaware corporation based in Cleveland, has two long-rival stockholder blocs, one holding Class R shares and the other holding Class S shares. To avoid future board stalemates, the stockholders unanimously amend the certificate to create one share of Class T stock that elects a fifth director, while Class R and Class S holders continue to vote their own shares to elect two directors each.

If a Class S stockholder sues, arguing that the arrangement is an unlawful voting trust because the new share reduced each bloc's prior voting power, how should the court rule?

Explanation. The arrangement is not a voting trust on these facts. The controlling rule is that a voting trust requires, at minimum, separation of voting rights from the other attributes of ownership of the stock. Here, the existing Class R and Class S holders still vote their own shares directly and still elect their designated directors. The new Class T share may dilute their voting power, but dilution from creating additional voting stock is not the same as divesting or separating voting rights from ownership. That reasoning follows the majority opinion's distinction between reduced voting power and transferred voting rights.