Remillard Brick Co. v. Remillard-Dandini Co.
109 Cal.App.2d 405, 241 P.2d 66 (Cal.App. 1 Dist. 1952)

  • Stanley and Sturgis were the majority shareholders, managers, and directors of the Remillard-Dandini corporation and its subsidiary, San Jose Brick & Tile. In their capacity as managers, they made a decision sell all the products (bricks) made by these two companies to a third company called Remillard-Dandini Sales Corp.
    • Coincidentally, Stanley and Sturgis just so happen to also independently own the Sales Corp.
  • Minority shareholders of Remillard-Dandini filed a derivative lawsuit against Stanley and Sturgis.
    • The shareholders argued that Stanley and Sturgis had breached their duty of loyalty by self-dealing. Basically, they were personally profiting by having the corporation sell bricks to their Sales Corp. at what was most likely below market values.
    • Stanley and Sturgis argued that they had fully informed all the shareholders to what was going on and the shareholders approved of the contract, so there was no conflict of interest.
      • Technically since Stanley and Sturgis were majority shareholders, the vote approving the contract was meaningless.
  • The Trial Court found for the shareholders.
    • The Trial Court found that directors are fiduciaries. They owe a duty to all stockholders, including the minority stockholders.
      • That’s known as the duty of loyalty.
    • The Court found that a director cannot, at the expense of the corporation make an unfair profit from his position. Where a transaction greatly benefits one corporation at the expense of another, and especially if it personally benefits the majority directors, it will and should be set aside.
  • This case explained the duty of loyalty, which basically says that a director cannot use his position to benefit himself at the expense of the corporation, even if he is the majority shareholder.
    • “While a transaction is not voidable simply because an interested director participated, it will not be upheld if it is unfair to the minority stockholders.”
  • After this decision, California amended their laws to disqualify shares voted by interested directors. That meant that in the future if people like Stanley and Sturgis wanted the corporation to contract with another business they owned, they would have to get a majority of the minority shareholders to agree that was a good deal.