Blasius Industries, Inc. v. Atlas Corp.
564 A.2d 651 · Court of Chancery of Delaware · 1988
Facts
Blasius Industries, a 9.1% shareholder of Atlas Corporation, initiated a consent solicitation to expand Atlas's board from seven to fifteen members and elect eight new directors. In response, the Atlas board, on December 31, 1987, expanded its board from seven to nine members and appointed two new directors. The board's primary motivation for this action was to prevent or delay the shareholders from placing a majority of new directors on the board, despite believing the Blasius proposal was not in the company's best interest.
Issue
Can a board of directors, even if acting in good faith and with appropriate care, validly act for the primary purpose of preventing an unaffiliated majority of shareholders from expanding the board and electing a new majority?
Holding
No, the board's action on December 31, 1987, was invalid and must be voided. The court found that the board's primary purpose was to thwart shareholder action, which constituted an offense to the relationship between corporate directors and shareholders, even though the directors acted on their view of the corporation’s interest and not selfishly.
Rule
When a board acts for the primary purpose of interfering with the effectiveness of a stockholder vote, the business judgment rule does not apply, and the board bears the heavy burden of demonstrating a compelling justification for such action. Directors, as agents of shareholders, cannot act to thwart effective shareholder action, even if they believe it is in the company's best interest.
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