Cookies Food Products, Inc. v. Lakes Warehouse Distributing, Inc.
Supreme Court of Iowa
430 N.W.2d 447 (1988)
Duane Herrig (defendant), who became majority shareholder of Cookies Food Products after his distribution company Lakes (defendant) took over Cookies' exclusive sauce distribution, replaced most of the board and approved four self-interested transactions: extending Lakes' distribution deal, paying Lakes for storage, paying Herrig a taco-sauce royalty, and approving Herrig's consulting fee and a distribution-fee increase. Minority shareholders (plaintiffs) sued, alleging improper self-dealing and excessive payments, and trial testimony suggested equivalent services might have cost less elsewhere; the district court ruled the transactions were fair and beneficial to Cookies, and the minority shareholders appealed.
Whether a transaction is voidable as improper self-dealing when the director can show that she acted in good faith, honesty, and fairness, and that the transaction was fair and reasonable to the corporation.