## Facts

- Bank of New York Company, Inc. (BNY) announced an unsolicited plan to acquire Irving Bank Corporation (Irving) through a tender offer and follow-on merger.
- Irving’s board adopted a shareholder rights plan (poison pill) that issued rights to common shareholders as a dividend attached to Irving common stock.
- The plan included a “flip-in” feature: if any person acquired 20% or more of Irving’s common shares, all other common shareholders could buy additional Irving stock at a steep discount, while the 20% acquirer could not.
- BNY sued for declaratory and injunctive relief, asserting the plan violated New York Business Corporation Law (BCL) § 501(c), which requires each share in the same class to be equal to every other share of that class.
- Irving argued the plan differentiated among holders (based on acquiring 20%), not among shares, and was a permissible defensive measure.

## Issues

1. Whether a flip-in poison pill that denies the triggering 20% shareholder the right to buy discounted shares, while granting that right to other common shareholders, violates BCL § 501(c)’s equality requirement for shares within the same class.

## Decision

- The court held the flip-in feature violated BCL § 501(c) because it produced unequal rights among shares of the same class.
- The court rejected the argument that the plan merely distinguished among shareholders; because the rights were attached to the common shares, the shares’ economic incidents became unequal upon the trigger.
- The court concluded the discriminatory component of the rights plan was invalid under New York law and granted declaratory relief consistent with that conclusion.

## Legal Principles

- BCL § 501(c) requires equality among shares within a single class; a corporation may create different classes or series, but it may not impose materially different rights among shares of the same class.
- When rights or benefits are attached to and travel with shares, a mechanism that removes a substantial economic benefit from some shares in the class while preserving it for others can violate § 501(c).
- In assessing compliance with share-equality requirements, courts may look to the plan’s practical operation and economic effect, not solely its formal characterization as holder-based discrimination.

## Conclusion

The court invalidated Irving’s flip-in poison pill under BCL § 501(c) because, once triggered, the plan caused common shares within the same class to carry materially different economic rights by excluding the 20% acquirer from a valuable discounted-purchase benefit.


Bank of N.Y. Co. v. Irving Bank Corp., 536 N.Y.S.2d 923 (Sup. Ct. N.Y. Cnty. 1988)