Perlman v. Feldmann

United States Court of Appeals for the Second Circuit · 1955 · Corporations

219 F.2d 173

Updated July 9, 2026

corporationsfiduciary dutiessale of corporate controlcontrolling shareholderdirector fiduciary dutycorporate opportunitycontrol premiumsteel shortage

Facts

C. Russell Feldmann, Newport Steel's dominant stockholder, chairman, and president, acted for himself and related sellers in transferring a controlling block of Newport stock to Wilport, a syndicate of steel end-users, during the Korean War steel shortage. Wilport wanted control in order to secure access to Newport's scarce steel output, and upon consummation of the sale Feldmann procured the resignation of the existing board and the election of Wilport's nominees. The stock sold for $20 per share, although the over-the-counter price had not exceeded $12 and book value was $17.03. Newport had previously used its market leverage through the 'Feldmann Plan' to obtain interest-free advances from customers in exchange for future production commitments, and it was negotiating for additional facilities at the time.

Issue

When a controlling shareholder who is also a director and corporate officer sells control during a period of market shortage to buyers seeking access to the corporation's product, must he account to the minority for any portion of the sale price attributable not merely to control stock as such, but to the transfer of a corporate advantage in allocating scarce output? Also, who bears the burden of proving whether the corporation could have benefited from that opportunity and whether the price reflected such a premium?

Rule

A corporate fiduciary may sell a controlling block, but may not appropriate to himself a premium that represents the value of a corporate advantage or market opportunity belonging to the corporation, such as the ability to control allocation of scarce corporate output during a shortage. Where fiduciary dealings with trust property are challenged, the fiduciary bears the burden of proving fairness and of negating the possibility of corporate gain from the opportunity diverted.

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Ronan Pierce is chair, CEO, and the dominant shareholder of Lakefront Alloy, an Indiana corporation based in Gary that produces specialty copper tubing. During a nationwide tubing shortage, he sells his control block to a syndicate of appliance manufacturers in Cleveland for far above market price, and the buyers immediately install their own board so they can direct scarce output to themselves.

If minority shareholders sue Ronan, what is the strongest argument for requiring him to account for part of the sale proceeds?

Explanation. The majority rule permits sale of control in general, but not retention by a corporate fiduciary of a premium attributable to a corporate advantage, such as power over allocation of scarce output during a shortage. Here the facts support an inference that the excess price was paid for that corporate advantage, not merely for ordinary control. Fraud or looting is unnecessary. (Derived from Perlman v. Feldmann (n.d.).)