Lindner Fund v. Waldbaum, Inc., 82 N.Y.2d 219 (1993)
A publicly traded corporation does not have a fiduciary duty to immediately disclose to its shareholders an agreement in principle for a corporate takeover by stock tender offer unless specific circumstances, such as insider trading, a statutory requirement, or prior inaccurate disclosures, exist.
Summary
Lindner Fund, a public mutual fund, sued Waldbaum, Inc., alleging that Waldbaum breached its fiduciary duty by not immediately disclosing an agreement in principle for a corporate takeover before the market closed. Lindner sold its shares of Waldbaum before the announcement of a tender offer by the Great Atlantic & Pacific Tea Company, missing out on a significant profit. The New York Court of Appeals held that Waldbaum did not have a duty to disclose the agreement at that stage, as no specific circumstances requiring disclosure were present, and imposing such a broad duty would be imprudent and lead to market instability. The Court affirmed the dismissal of the complaint.
Facts
Lindner Fund sold 49,500 shares of Waldbaum, Inc. between November 14 and November 26, 1986, at prices ranging from $24 to $26 per share.
After the market closed on November 26, 1986, the Great Atlantic & Pacific Tea Company, Inc. (A&P) announced a plan to acquire Waldbaum’s outstanding shares at a tender offer price of $50 per share.
Lindner alleged that Waldbaum’s failure to disclose the agreement in principle before the market closed caused it to lose potential profits, as it sold its shares at a lower market price prior to the public announcement.
Procedural History
Lindner filed a complaint against Waldbaum in Supreme Court, alleging breach of fiduciary duty.
The Supreme Court denied a motion to dismiss the complaint.
The Appellate Division reversed the Supreme Court’s order and dismissed the complaint for failure to state a cause of action.
The New York Court of Appeals granted Lindner leave to appeal.
Issue(s)
Whether a publicly traded corporation has a fiduciary duty to immediately disclose to its shareholders an agreement in principle for a corporate takeover by stock tender offer.
Holding
No, because an unqualified duty to disclose is not supported by New York or federal law, and such a duty arises only in limited circumstances not present in this case.
Court’s Reasoning
The Court of Appeals stated that corporate officers and directors have a fiduciary relationship with shareholders, but a duty to disclose a major transaction arises only in specific instances: (1) insider trading, (2) a statute or regulation requiring disclosure, or (3) inaccurate, incomplete, or misleading prior disclosures.
The court noted that merger negotiations are