Zahn v. Transamerica Corporation

Zahn (plaintiff) held Class A stock in Axton-Fisher Tobacco. Transamerica (defendant) bought up Axton-Fisher's Class A and Class B stock, gaining control and installing a board dominated by its own officers. When Axton-Fisher's main asset-leaf tobacco-shot up in value, Transamerica allegedly planned to redeem the Class A stock at $60 per share and then liquidate the company, capturing the tobacco's appreciation for itself as the dominant Class B holder while cutting the Class A holders out of the liquidation. Zahn alleged the Class A holders were never told the tobacco's true value. He sued Transamerica for breaching the fiduciary duty of loyalty; the district court ruled for Transamerica, and Zahn appealed.

Whether directors breach their fiduciary duty of loyalty when they declare dividends, or redeem a class of stock, for the purpose of enriching the controlling shareholder rather than serving the corporation as a whole.