Benihana of Tokyo, Inc. v. Benihana, Inc.
Delaware Supreme Court
906 A.2d 114 (Del. 2006)
Benihana, Inc. needed capital to renovate its restaurants and decided to issue convertible preferred stock; board member John Abdo, who was also a director of BFC Financial Corporation, told the financial advisor Fred Joseph that BFC wanted to buy the stock and personally negotiated the sale terms on BFC's behalf. At a board meeting, Abdo presented BFC's proposal and then left the room; the remaining board, aware Abdo was a BFC director and had initiated the deal, voted to approve the sale to BFC, and later reaffirmed that approval despite a letter from Benihana of Tokyo (plaintiff), a major shareholder, raising conflict-of-interest concerns. Benihana of Tokyo sued the Benihana board for breach of fiduciary duty.
Whether a corporate stock sale that directly benefits an interested director is valid when the board approves it after learning the director's role in proposing and negotiating the deal.