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Court of Appeal, Second District, Division 3, California.

June K. JONES, on behalf of herself and all other minority shareholders of the United Savings & Loan Association of California, Plaintiff, Appellant and Respondent, v. H. F. AHMANSON & COMPANY, a corporation, et al., Defendants, Respondents and Appellants.

Civ. 32089.

Decided: March 24, 1969

Darling, Mack, Hall & Call, W. John Kennedy, Los Angeles, for plaintiff-appellant and respondent June K. Jones. Mitchell, Silberberg & Knupp, Howard S. Smith, Los Angeles, for defendant-respondent and appellant H. F. Ahmanson & Co. and certain other defendants-respondents and appellants. Edward M. Ruskin and Gerald E. Lichtig, Los Angeles, for defendant-respondent and appellant United Financial Corp. of California.

The present action was brought by June K. Jones on behalf of herself and all other minority stockholders of United Savings and Loan Association of California (Association) against fifteen individuals and four corporations or companies, all former stockholders in Association, some of them directors and some officers of the Association. Also named as a defendant is United Financial Corporation of California (United Financial). The purpose of the action is to obtain redress for the minority stockholders for losses claimed to have been suffered by them by reason of alleged breaches by the defendants of their fiduciary duties as officers and majority stockholders of Association. The defendants are not accused of any fraudulent acts or practices. The demurrer of defendants to plaintiff's third amended complaint was sustained without leave to amend, and judgment was entered for the defendants. Plaintiff appealed, and the defendants filed a protective cross appeal.

The parties agreed upon an elaborate statement of facts and stipulated that the same may be considered on the appeal as though pleaded by plaintiff. By the complaint and the stipulation the following facts are made to appear.

In May 1959 certain defendants, with others not joined in this action, owning 5,564 shares of Association, organized a Delaware holding corporation, United Financial Corporation of California. They then transferred each of their shares in the Association along with several businesses for 250 shares in United Financial. (A United block.) Later this was modified by pro rata surrenders (30%) of shares originally issued and declaration of stock dividends. (A United ‘derived’ block.) By March 1965, the ‘derived’ block was at 240.87 shares. The minority (Jones et al.) who own 363 shares were not permitted to exchange their shares for shares of United Financial. They have never been permitted to acquire shares in United Financial except upon terms available to the general public.

United owns approximately 87% of the shares of Association. The defendants who controlled the Association prior to the formation of United Financial now control United Financial which has sufficient voting power to elect a majority of the Association's directors, who control the dividend policy of the Association.

In June of 1960, United Financial made a public offering and sale of $6,000,000 face amount of its 5% Convertible Subordinated Debentures and of 120,000 shares of its capital stock. Eighty-five per cent or $6,200,000 of the proceeds of the sale was distributed to the original stockholders of United Financial. These debentures and shares were sold to approximately 1000 persons throughout the United States. United Financial's stock was then traded on the over-the-counter market.

In September 1960, United Financial notified the minority that it was authorized to buy up to 350 shares of the guarantee stock in Association at a stated price and did buy 130 shares for $1100 per share.

In February 1961, United Financial made a second public offer and sale of 50,000 shares. At the same time certain stockholders, among them the principal defendants, also made a public offering of 600,000 of their own shares. This stock was sold to various people throughout the United States, and as a result of the wide geographical distribution, number of stockholders, and consolidated net earnings in excess of one million, the stock qualified for listing on the New York stock exchange and was listed in November 1961.

It was further alleged and stipulated to that no harm or damage has been done to Association by any of the aforesaid actions of defendants.

It was alleged that plaintiff and all other minority stockholders of Association are aggrieved in that the defendants have so manipulated the two corporations as to create a wide market for the shares of United Financial at exceedingly high prices and to render the shares of Association unsalable except to United Financial whereas upon a free and open market such shares would have a value equal to the value of the interests in United Financial which were acquired in exchange therefor in the original exchange of stock.

The prayer of the complaint is that upon tender of Association stock each minority stockholder recover from the defendants for each share tendered the market value of ‘each derived block of United Financial stock during 1960–1962 and interest plus $927.50, the amount of capital received by each defendant stockholder in United Financial and interest thereon from June 1960. Included was a prayer for attorneys' fees and exemplary damages.

The defendants demurred upon numerous grounds. The demurrer was sustained without leave to amend upon the grounds (1) the complaint fails to state a cause of action, (2) it is a derivative action, and there has been no compliance with section 7616 of the Financial Code, (3) the Association is an indispensable party and is not named, (4) a cause of action in favor of the corporation is improperly joined with a cause of action in an individual capacity and (5) plaintiff has no capacity to sue. The demurrers were overruled as to other grounds, among them (1) it appears from the complaint that the action is barred by laches, (2) uncertainty as to the identity of the minority stockholders and (3) failure to separately state causes of action.

Plaintiff contends that the defendants violated fiduciary duties owed to the minority stockholders in the following particulars: They created a favorable market for their stock in Association by converting it into stock in United Financial; they developed a high market price for United Financial stock and made enormous profits; they refused to permit plaintiff and other minority stockholders in Association to exchange their stock for United Financial stock and refused to create for the shares of the minority a market as favorable as the one they created for themselves for their United Financial stock.

Plaintiff says that directors occupy a fiduciary relationship toward the corporation and the stockholders and that any group of stockholders who have the power of control of the corporation also have certain fiduciary duties and obligations toward the corporation and the stockholders. Plaintiff does not deny that the defendants had a right to create a favorable market for their stock. She claims the advantageous outlet they created for their Association stock should have been made available to all the stockholders; it was a breach of duty to exclude the minority from the promotional activities of United Financial which could only have been rectified by creating as favorable a market for Association stock in some other manner.

It is not alleged or claimed by plaintiff that the intrinsic value of Association stock has been affected in any manner, and the fact that the corporation has suffered no harm or damage would seem to preclude a claim that the entire body of stockholders suffered harm by any diminution of the intrinsic value of their stock.

Defendants answer that either as directors or controlling stockholders they had an absolute right to use and dispose of their stock as they saw fit as long as they violated no right of the corporation or the other stockholders; they had no fiduciary or other duty to permit the minority to participate in their scheme to create a favorable market for their Association stock through the holding company; it was a private enterprise of their own; the minority have been deprived of nothing except an opportunity to sell their stock at a higher price than they have been able to obtain.

Plaintiff argues that when a favorable outlet for the defendants' Association stock was created through the holding company it belonged to all the stockholders. She refers to it as a ‘stockholders' business opportunity and says the minority were deprived of it. She seeks to invoke the rule that an officer of a corporation is not permitted to seize for himself a business opportunity that rightfully belongs to the corporation. (MacIsaac v. Pozzo, 81 Cal.App.2d 278, 183 P.2d 910.) The rule is inapplicable here. Nothing was taken from the corporation or the stockholders. Association had no interest in creating a holding company. Any number of stockholders could have organized a holding company as the defendants did and for the exclusive benefit of themselves.

A further argument is that the defendants had a fiduciary duty not to make use of their control of Association for an advantage not equally shared by all the stockholders. The theory as to this alleged breach of duty is stated in certain passages of plaintiff's opening brief, as follows: ‘* * * directors and majority stockholders may not sell their control in the corporation to persons whom [sic] they have reason to believe will damage the value of the remaining minority interests. Insuranshares Corp. of Delaware v. Northern Fiscal Corp., 35 F.Supp. 22 (E.D.Pa., 1940); Gerdes v. Reynolds, Sup., 28 N.Y.S.2d 622 (1941); Perlman v. [Feldmann] Feldman, 219 F.2d 173, 50 A.L.R.2d 1134 (2d Cir. 1955). Under the principles of such cases, the Defendants must here be held accountable for transferring control of the ASSOCIATION to United Financial which in turn intended to and did destroy the market for and hence value of minority guarantee stock.

‘Had Defendants acted properly, they would have avoided this conflict of interest by including all minority stockholders in United Financial at the same exchange ratio received by the participants in the Delaware exchange. Had this been done in a timely manner, Plaintiff and other minority stockholders would have been able to sell their stock at the prices alleged in the Complaint (Complaint ¶ VIII; Appendix A, pp. A24–A25).’ (On January 30, 1962, a high of $9416.32, a low of $8815.84 and a mean value of $9116.08 for a derived block of United Financial stock.)

Plaintiff seeks to apply certain other familiar rules of fiduciary duty; a corporation fiduciary must refrain from engaging in any transaction in which his private interest will conflict with the duty he owes the stockholders. (Wickersham v. Crittenden, 93 Cal. 17, 28 P. 788.)

A director may not profit at the expense of minority stockholders by making use of special facts which became known to him only as a director. (Hobart v. Hobart Estate Co., 26 Cal.2d 412, 159 P.2d 958; Taylor v. Wright, 69 Cal.App.2d 371, 159 P.2d 980; Poor v. Yarnell, 28 Cal.App. 714, 153 P. 976.) Stockholders who invested their money in good faith had a right to rely on the reciprocal good faith of the directors and officers. (Angelus Securities Corp. v. Ball, 20 Cal.App.2d 423, 67 P.2d 152.) Trustees must act in highest good faith. (Civ.Code, § 2228.) The standard of a trustee's behavior is not honesty alone but ‘* * * the punctilio of an honor the most sensitive.’ (Cardozo, in Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 62 A.L.R. 1.) Of defendants' conduct plaintiff says it has been ‘neither sensitive nor punctilious' and that it was not ‘something more than the morals of the market place.’

We cannot see that the acts of the defendants were lacking in good faith toward the minority. To act in good faith one does not have to be a ‘good neighbor,’ nor does the law demand of a fiduciary that he should in all matters do unto his beneficiary as he would be done by. As for conduct above the morals of the market place, the defendants maintain that their activities have been above all those which the courts have denounced as breaches of fiduciary duty.

We believe that one of the advantages of the ownership of corporate stock is that a man may do with it as he pleases so long as he causes no harm to his corporation or the other stockholders, and that if he sees a chance to dispose of it to his advantage he has no duty, arising solely out of stock ownership, to invite his costockholders to share the opportunity with him.

It is well settled that the power of control of a corporation carries with it certain duties toward the corporation and the remaining stockholders. It is not necessary to enumerate the actions that have been held to have been breaches of that duty; they are too numerous to mention. The test in any case is whether the use or disposal of the power of control was wrongful as to the corporation or the remaining stockholders by working harm and damage to property rights, including the loss of the corporation's business opportunities.

The sale of control which carried with it valuable business opportunity that belonged to the corporation was proved and held to be in violation of fiduciary duty of controlling stockholders in Perlman v. Feldmann, 219 F.2d 173, 50 A.L.R.2d 1134 (2nd Circuit), (a derivative action), (See 68 Harvard Law Review, p. 1274). We have no such facts in our case.

It is true that the successful promotion of United Financial was made possible through acquisition of at least a controlling interest in Association and that the defendants derived a special benefit in making use of their power of control to create a favorable outlet for their Association stock. But control of Association did not leave Association. Through their power of control of United Financial the defendants retained the power of control of Association. They did not lose their financial interests in Association; they retained them in the form of their United Financial stock. They received nothing else in the exchange for their Association stock; value did not enter into the transaction. The United Financial stock was worth no more than the stock given in exchange for it. The defendants had no duty toward Association or its stockholders to provide a favorable market or value for Association stock other than by conducting the business of the corporation in a sound, businesslike and competent manner. They committed no wrong toward the minority in excluding them from the promotion unless they had a duty to include them, and we do not believe they had any such duty.

We are not persuaded that any of the acts of the defendants was in violation of any of the settled principles of fiduciary duty upon which plaintiff relies. The benefits realized by defendants came from manipulations which created a high market price for United Financial stock and not as a premium realized in the exchange of stock. Market price is an elusive thing and often fictitious. We do not believe the minority had a property right to a share of a possible high price for United Financial stock. Their disadvantage could have been due to the fact that they did not own dollar stock. We do not believe the defendant committed a legal wrong against the minority in not including them in the organization and promotion of United Financial.

With respect to the alleged destruction of the market for Association stock plaintiff says that by merely publicizing the substantial identity of underlying assets and earnings of the two corporations and withholding the market facilities for minority stock the defendants virtually destroyed the market for minority stock. The facts do not support this statement.

The minority stock never had and could not have acquired the market that was provided through the 70 financial houses that sold and distributed the United Financial stock. There was no way in which the stock of Association, which was worth at times from $1,000 to several thousand dollars per share, could compete in public demand for the dollar stock of United Financial. There could not have been developed for a few hundred shares of Association stock the broad and favorable market enjoyed by the two million shares of United Financial stock. It is altogether clear from the unquestioned facts that the intrinsic value of plaintiff's shares was not lowered by the actions of the defendants. If plaintiff has failed to sell her stock she must have been asking what she thought it was worth, and she thinks it has been worth the market price the defendants built up for their derived blocks. It was unpraiseworthy practice to exclude from the money making scheme of the defendants the few stockholders who helped to build up the Association in the early stages of its existence, but their exclusion created no valid claim for redress.

The court's ruling that the action is derivative is fully discussed in the briefs. Plaintiff maintains she is suing for herself and on behalf of all other minority stockholders; that it is a class action and properly maintainable as such.

There are allegations in the complaint that point toward the use by defendants of their corporate authority for their personal advantage, such as the representation while promoting United Financial stock that the operations of Association would be conducted so as to produce earnings and dividends sufficient to enable United Financial to meet its obligations upon its debentures. It is alleged that the defendants did declare and pay at least one large dividend of $57.00 for the special benefit of United Financial. Inasmuch as plaintiff disclaims reliance upon these allegations and denies she is suing in the right of the corporation, we have disregarded all allegations suggestive of the nature of the action as derivative in holding that the complaint fails to state a cause of action upon any theory. We do not decide that the action could not have been maintained as a class action if the defendants had been charged with conduct which constituted violation of their fiduciary duty which resulted in injury to the minority stockholders as a special group. (See Zahn v. Transamerica Corporation, 3 Cir., 162 F.2d 36, 172 A.L.R. 495.) Our holding that the defendants have committed no justiciable wrong disposes of the dispute as to the nature of the action.

Plaintiff asserts ‘Defendants Violated the Anti-Trust Laws by Combining and Pooling Their Own Interests in the Association in a Manner That Gave United Financial a Monopolistic ‘Corner’ in the Market for Minority Stock,' and she claims that the defendants' actions were in violation of the Cartwright Act. (Business and Professions Code, §§ 16720 et seq.) She characterizes the conduct of defendants as ‘monopolization’ of the market for minority stock, but the facts she alleges fall far short of a showing that the defendants secured a ‘corner’ on the minority stock or did anything in restraint of trade in it. They put nothing in the way of plaintiff's selling her stock to anyone who was willing to pay what she asked. It was through no fault or wrong of the defendants that she was unable to find buyers at those prices.

It is unnecessary to consider the appeal of defendants, and it is dismissed. The judgment is affirmed; the parties shall stand their own costs of appeal.

I have joined in Justice Shinn's opinion, but in view of the undeveloped state of the law of the fiduciary duty owed by majority to minority shareholders I believe that a more complete discussion of the authorities and the principles relating to that subject is appropriate. The discussion that follows will be clearer if preceded by an amplified statement of the facts alleged by plaintiff.

In May 1959 a majority of the outstanding shares of the Association were owned by defendant H. F. Ahmanson & Co., a company controlled by Howard F. Ahmanson. Defendants as a group owned 85% of the outstanding shares; the remaining 15% were owned by approximately 400 persons, including plaintiff. Defendants include all of the officers and directors of the Association and are comprised, to a large extent, of relatives and business associates of Howard F. Ahmanson and companies controlled by them. I shall refer to the defendants other than United as the Ahmanson group.

In May 1959 the Ahmanson group organized United and transferred to it all of their shares in the Association in exchange for shares of United. Defendants have at all times since included a majority of the board of directors of United. By agreement among themselves defendants have not permitted the minority shareholders of the Association who were not members of the controlling group to acquire shares in United except upon terms available to the general public.

Plaintiff first learned of the formation of United at the time of its first public offering in June 1960. In that offering United sold to members of the public through an underwriting stock and convertible debentures having an aggregate purchase price of $7,200,000. Of this amount $6,200,000 was paid out by United to the original shareholders of United as a distribution on their stock equal to $927 per share.

The prospectus by which these securities were offered to the public announced the purpose of the organizers of United to use the proceeds in large part for purposes of a capital distribution to them. The prospectus also informed the public that if the direct earnings of United were insufficient to meet the principal and interest payments due on the debentures then the direct earnings of United would have to be augmented by dividends from the Association.

In the application of United for a permit to issue these securities, the Ahmanson group caused United to represent that the financial reserves for debenture repayment required by the commissioner's rules would be satisfied by having United exercise its control to cause the Association to liquidate or encumber its income-producing assets for cash and then cause the Association to distribute the cash to United in order to service and retire the debentures.

In February 1961 the Ahmanson group made a secondary public offering of approximately 600,000 of their shares of United, which comprised one-half of the shares of United that they had acquired in exchange for their shares of the Association. They received approximately $14,000,000 through this offering.

At the time of these two public offerings of United, over 85% of the value of its assets and its earnings were attributable to the stock of the Association owned by United. The remaining assets of United consisted of another savings and loan association and several insurance agency businesses and one other business of an undisclosed nature originally controlled by the Ahmanson group and transferred to United at the time of its organization.

In September 1960 the book value of the Association stock was approximately $1412 per share. In that month United, which then owned 87.3% of the outstanding shares of the Association, sent a letter to the remaining shareholders of the Association, including plaintiff, offering to purchase up to 350 of their shares at a cash price of $1100 per share. United was able to purchase 130 shares of the Association pursuant to that offer.

In December 1960 United caused the president of the Association to send a letter to all minority shareholders of the Association advising them that there would be no dividends except the regular $4 per share dividend on shares of the Association within the near future. Plaintiff alleges that the purpose of this letter was to ‘impair the morale’ and to persuade the minority shareholders who had not accepted the $1100 per share offer to accept any future offers of United.

Plaintiff alleges further than this offer and subsequent attempts by United to acquire minority shares of the Association were made pursuant to a common plan among defendants adopted with the intent to oppress plaintiff whereby they sought to use their control over United and the Association to enable them to acquire minority shares at prices or upon terms less advantageous to the minority shareholders than they would have enjoyed had they been allowed to acquire United shares on the same basis as the Ahmanson group.

In May 1961 the Ahmanson group caused United to adopt a plan to acquire additional minority shares of the Association whereby each minority shareholder of the Association would receive approximately 51 shares of United having a market value of approximately $2400 in exchange for each share of the Association. At that time the members of the Ahmanson group had received 187.25 shares of United having an aggregate market value of approximately $8800 for each share in the Association stock exchanged by them at the time of the formation of United. The book value of each share of the Association at the time this offer was made was more than $1700; the book value of the 51 shares of United offered in exchange for each share of the Association was $210.

Plaintiff alleges that as part of its plan to dry up the market for minority shares of the Association and thereby to enable defendants to acquire the shares upon terms advantageous to them, United sought to prevent disclosure of the identity and addresses of the minority shareholders by requesting the Commissioner of Corporations to withhold disclosure of the names from the other minority shareholders and the public.

Thereafter, United acquired additional minority shares of the Association for prices less than the then book value of those shares.

The book value of the shares of the Association increased steadily from $1131 per share in 1959 to $4054 in 1965. During this period the earnings per share varied from a low of $186 to a high of $899. In 1966 the Association lost $23 per share, but the book value increased to $4144 per share.

During the period 1959 through 1966 the Association paid a regular dividend of $4 per share. In addition, in 1959, 1960 and 1962, it paid extra dividends of $75, $57 and $84 per share, respectively. Plaintiff alleges that the purpose of the $57 per share extra dividend in 1960 was to enable the defendants participating in the second offering of United shares in February 1961 to obtain a higher price for their United shares than they could have obtained had only the regular dividend been paid.

United has prepared its financial statements on a consolidated basis from which it is apparent that over 85% of the consolidated earnings and net worth of United are attributable to its ownership of shares of the Association. Plaintiff alleges that one result of the publicizing by United of the substantial identity of underlying assets, earnings and business of United and the Association was to cause investors interested in the Association to purchase shares of United rather than the Association and thereby enhance the power of United to control the price at which a minority shareholder of the Association could sell his shares.

Plaintiff alleges that none of the acts of defendants of which she complains has caused damage or harm to the Association.

Officers, directors and controlling shareholders stand in a fiduciary position to the corporation and its minority shareholders. (Pepper v. Litton, 308 U.S. 295, 306, 60 S.Ct. 238, 84 L.Ed. 281; Southern Pacific Co. v. Bogert, 250 U.S. 483, 487–488, 39 S.Ct. 533, 63 L.Ed. 1099; Efron v. Kalmanovitz, 226 Cal.App.2d 546, 556, 38 Cal.Rptr. 148.) As fiduciaries they owe a duty of ‘highest good faith’ to the corporation and its shareholders. (Remillard Brick Co. v. Remillard-Dandini Co., 109 Cal.App.2d 405, 419, 241 P.2d 66.) They may not under color of a legal plan take for themselves more than their fair share of the corporate assets (Lebold v. Inland Steel Co. (7th Cir.1941) 125 F.2d 369, modified (7th Cir.1943) 136 F.2d 876, cert. denied 320 U.S. 787, 64 S.Ct. 196, 88 L.Ed. 473; Zahn v. Transamerica Corp. (3d Cir.1947) 162 F.2d 36, 172 A.L.R. 495), nor may they seize for their exclusive benefit an opportunity of the corporation to make an advantageous acquisition of property or new business (Irving Trust Co. v. Deutsch (2d Cir.1934) 73 F.2d 121; Guth v. Loft, Inc. (1939) 23 Del.Ch. 255, 5 A.2d 503).

Plaintiff does not allege that defendants either appropriated or diluted plaintiff's interests in the assets of the Association, and by her allegation and stipulation that the Association was not harmed by any actions of defendants plaintiff concedes that defendants did not acquire for their own benefit any business opportunity that they should have acquired for the benefit of the Association. Therefore plaintiff does not state a cause of action under either of these theories.

The principle of fiduciary duty ordinarily does not prevent the holder of a block of shares which give control from selling those shares for the best price he can obtain even though the price may be enhanced by the control position of the shares. (Levy v. American Beverage Corp. (1942) 265 App.Div. 208, 38 N.Y.S.2d 517; Stanton v. Schenck (1931) 140 Misc. 621, 251 N.Y.S. 221, 229–231; Tryon v. Smith (1951) 191 Or. 172, 229 P.2d 251; see Ryder v. Bamberger, 172 Cal. 791, 806, 158 P. 753; 13 Fletcher Cyc. Corp., § 5805, p. 143 (1961 Rev. vol.).) However, where the selling shareholders have used their position of control to effect a sale that originated as a corporate opportunity to sell its business, they will be held accountable for their profits to the remaining shareholders. (American Trust Co. v. Calif. Western States Life Ins. Co., 15 Cal.2d 42, 98 P.2d 497; Commonwealth Title Ins. & Trust Co. v. Seltzer (1910) 227 Pa. 410, 76 A. 77; Dunnett v. Arn (10th Cir. 1934) 71 F.2d 912.) It has also been held that the officers, directors and controlling shareholders breach their fiduciary duty to the corporation when they sell their own shares in competition with shares being offered by the corporation in such manner as to impair the success of the corporate offering. (International Bankers Life Ins. Co. v. Holloway (Tex.1963) 368 S.W.2d 567.) Again, plaintiff's stipulation that the actions of defendants did no harm to the Association precludes her from resting her cause of action on the theory that defendants appropriated or impaired a corporate opportunity to sell its business or dispose of its shares.

Plaintiff relies on the celebrated case of Perlman v. Feldmann (2d Cir.1955) 219 F.2d 173, 50 A.L.R.2d 1134. Feldmann was president and chairman of the board of Newport Steel Corporation and with his family owned a controlling block of stock. During the Korean war steel was in short supply. Feldmann arranged for the sale of his stock and that of his associates to Wilport Company, a syndicate of steel users organized to acquire control of a dependable source of supply. The price was almost twice the price of Newport shares in the public market. The transaction was in no way fraudulent. The Court of Appeals for the Second Circuit held that the Feldmann group was liable to the other shareholders of Newport for that portion of the purchase price attributable to ‘the appurtenant control over the corporation's output of steel.’ (219 F.2d 173, 178.) The court pointed out that the ‘corporate opportunities of whose misappropriation the minority stockholders complain need not have been an absolute certainty in order to support [their actions against the controlling shareholder].’ (219 F.2d 173, 176.) Liability in Perlman v. Feldmann rested on the fact that the premium was in the circumstances a premium for the corporate product.

In this case plaintiff's concession that defendants caused no harm to the Association precludes our consideration of the possibility that the formation of United by defendants foreclosed the Association from realizing on some potential but uncertain corporate opportunity such as the chance to issue its own securities to the public or to invest in affiliated enterprises. Although Perlman v. Feldmann has been the subject of extensive commentary (for a list of articles see Andrews, The Stockholder's Right to Equal Opportunity in the Sale of Shares, 78 Harv.L.Rev. 505, 509, footnote 15, and Baker & Cary, Cases and Materials on Corporations (3d Ed.) p. 618), no commentator has suggested that its holding is broad enough to impose a duty on controlling shareholders under all circumstances to share with the remaining shareholders the premium they receive from the sale of a controlling block of shares. Although some commentators have argued that this should be the law (Berle and Means, The Modern Corporation and Private Property (1932) 243–244; Andrews, supra, 78 Harv.L.Rev. 505; Bayne, A Philosophy of Corporate Control, 112 U.Pa.L.Rev. 22, 50 (1963)), no court, so far as I know, has so held.

From the standpoint of fairness to the minority shareholders of the Association the situation in this case is the same as it would have been had the members of the Ahmanson group sold their shares to a corporation for a substantial premium over book value instead of forming a holding company and selling their shares in that entity. In accordance with good accounting practice the corporate purchaser would have been able to prepare its financial statements on a consolidated basis, consolidating the accounts of itself and the Association. Investors who desired to participate in the growth of the Association would probably have preferred to invest in shares of the purchasing corporation rather than in minority shares of the Association, particularly if there had been a public market for the shares of the purchasing corporation, just as in this case they preferred to purchase shares of United rather than shares of the Association. The market for plaintiff's shares would have been affected in the same way by a sale of the Ahmanson shares as it was by the transfer of those shares to United. Therefore, there is no unfairness unique to the formation of United by the Ahmanson group and the subsequent sale of United securities to the public that distinguishes this case from those cases that have dealt with the sale of controlling shares.

Plaintiff's allegations show that the Association was not injured, that it lost nothing by the transfer of the shares of the Ahmanson group to United, and that the remaining shareholders individually and collectively lost nothing except the opportunity to participate in the favorable market created by defendants in United stock. In view of these facts, we can hold that plaintiff states a cause of action only if we extend the scope of the fiduciary duty of controlling shareholders to minority shareholders beyond the limits presently established by the cases.

It is difficult to assess the effect of a rule of fiduciary duty upon the incentives that operate in our entrepreneurial system of capital formation and development. Nevertheless, a court of equity should consider those effects before adopting an innovation which may tend to change those incentives. (See Stanton v. Schencek, supra, 140 Misc. 621, 251 N.Y.S. 221, 230.) The consolidation of several related businesses under a single top management by means of a holding company in many cases produces benefits for the constituent companies and their minority shareholders as well as for the persons who control the holding company. (See Note, Savings and Loan Holding Companies, 41 So.Cal.L.Rev. 402, 409.) This holding company may have been organized and promoted, as was United in this case, by the controlling shareholders of one of its constituent companies. The incentive of financiers to take the risks involved in the formation and financing of a holding company and the acquisition of control of potential subsidiary corporations might well be diminished by a rule that requires them in the absence of any showing of harm to the subsidiary or to its shareholders to share the benefits of their enterprise with the minority shareholders of each subsidiary corporation. There is no such unfairness in the facts alleged by plaintiff that persuades me to disregard the negative possibilities of an extension of the rule declared in Perlman v. Feldmann.

Plaintiff alleges that the Ahmanson group used its control of United and the Association in bad faith to force plaintiff and the other minority shareholders to sell their shares of the Association to United at prices which ‘would enable United Financial to secure an advantage in the acquisitions at the expense of the minority stockholders.’ Plaintiff alleges that in furtherance of this purpose defendants caused the president of the Association to notify the minority shareholders that the directors did not plan to raise the annual dividend of $4 per share on shares of the Association.

These allegations add flavor but no substance to plaintiff's basic charge that defendants treated her unfairly in not giving her the opportunity to acquire shares of United on the same basis as the members of the Ahmanson group. As we have explained, defendants had no duty to offer her that opportunity. The allegations that defendants offered to purchase plaintiff's shares for less than they were worth do not state a cause of action for breach of fiduciary duty in the absence of an allegation that defendants failed to disclose material facts relevant to the price of the shares. (See American Trust Co. v. Calif. Western States Life Ins. Co., supra, 15 Cal.2d 42, 56, 98 P.2d 497; Taylor v. Wright, 69 Cal.App.2d 371, 379, 159 P.2d 980.) Plaintiff makes no such allegation.

Plaintiff's allegations concerning the dividend policy of the Association are insufficient to support a cause of action for equitable relief from that policy. (Mulcahy v. Hibernia Savings and Loan Soc., 144 Cal. 219, 225, 77 P. 910; see Baker & Cary, supra, p. 1392.)

Plaintiff's allegation that United declined to furnish her with a list of the shareholders of the Association adds nothing to her complaint because she does not allege that she either sought or obtained the approval for the requested inspection of shareholder records of the Association as required by section 7615 of the Financial Code.



SHINN,* Associate Justice. FN* Retired Presiding Justice of the Court of Appeal sitting under assignment by the Chairman of the Judicial Council.

FORD, P. J., and MOSS, J. concur.

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