Benihana of Tokyo, Inc. v. Benihana, Inc.
906 A.2d 114 (Del.Supr. 2006)

  • Aoki owned 100% of BOT stock. BOT owned about 51% of Benihana.
  • Benihana was having financial difficulties. The directors got together with the CEO and the general counsel and worked out a plan to issue $20M or preferred stock. A company called BFC stepped up to buy the stock.
    • The stock deal was partially negotiated by a Benihana director named Abdo.
    • Abdo just also happened to be the principle owner of BFC.
  • The directors approved the stock sale. Aoki filed a derivative lawsuit against the directors.
    • Aoki argued that the directors had breached their fiduciary duties by allowing Abdo to negotiate the deal from both sides.
      • That would be self dealing which is a breach of the duty of loyalty.
  • The Trial Court found for the directors.
    • The Trial Court found that the board was not informed that Abdo had negotiated the deal on behalf of BFC, but that they did know Abdo was a principle of BFC.
    • The Court found that the decision was within the bounds of the business judgment rule.
  • The Delaware Supreme Court affirmed.
    • The Delaware Supreme Court looked to Delaware law (DGCL §144) which provided safe harbor for interested transaction if “the material facts as to the director’s relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors, and the board in good faith authorizes the contract or transaction by an affirmative vote of the majority of the disinterested directors.”
      • Basically, if the directors know about the conflict, and the majority of the ones unconflicted still vote to allow the transaction, then it is protected by the business judgment rule.
    • Aoki argued that §144 was not applicable because the directors didn’t know that Abdo negotiated the deal, but the Court found that didn’t really matter because the directors already knew that Abdo, as the principle of BFC, would have to approve whatever deal had been negotiated.
      • So §144 still applies.
    • The Court found that since the directors spent a lot of time on the process of making their decision, and that transaction was a fair deal that was approved by a majority of disinterested directors, it is covered by the business judgment rule, and won’t be overturned unless it can be shown that it amounts to corporate waste.
      • Corporate waste can be defined as “an exchange of corporate assets for consideration so small as to lie beyond the range at which a reasonable person might be willing to trade.