## Facts

- Marriott Corporation announced a restructuring that would split the business into two entities through a spin-off.
- A newly formed, wholly owned subsidiary, Marriott International, Inc., would receive the company’s principal operating businesses and cash-generating assets.
- The remaining entity (renamed Marriott Host Corporation) would retain certain real estate and other assets but would remain responsible for the large majority of Marriott’s long-term bond debt.
- The transaction would be implemented by transferring assets to International and then distributing all International stock as a dividend to Marriott’s common stockholders.
- Plaintiffs were institutional investors holding a majority of Marriott’s outstanding Series A Cumulative Convertible Preferred Stock.
- The preferred stock’s governing certificate of designation provided cumulative dividend rights (payable only from legally available funds), priority over common dividends, conversion rights into common stock, and conversion-price adjustment provisions triggered by certain distributions to common stockholders.
- Plaintiffs alleged the spin-off shifted value to common stockholders, left preferred holders in a debt-burdened entity with reduced dividend prospects, and deprived them of a proportionate benefit from the International stock distribution (or an adequate contractual adjustment).
- Plaintiffs sued to enjoin the special dividend and asserted, among other claims, that the directors breached fiduciary duties of loyalty and good faith owed to preferred stockholders by favoring common stockholders (including Marriott family members with significant common holdings).

## Issues

1. Whether the alleged harm to preferred stockholders from the spin-off stated an independent claim for breach of fiduciary duty or instead presented a contract dispute governed by the certificate of designation and charter.
2. Whether directors breach fiduciary duties to preferred stockholders by approving a restructuring that benefits common stockholders when the challenged effects concern dividends, distributions, and conversion-related terms addressed in the preferred contract.

## Decision

- The Court of Chancery treated the controversy as primarily contractual, not fiduciary, because the challenged interests (dividends, distributions, and conversion adjustments) were addressed by the preferred stock’s certificate of designation.
- The court declined to use fiduciary duty doctrine to grant preferred stockholders protections beyond what was expressly (or clearly impliedly) provided in the certificate of designation.
- The fiduciary-duty theory was dismissed or substantially curtailed at the pleadings stage, leaving plaintiffs to pursue any remedies available under the governing charter-based contract.

## Legal Principles

- Preferred stockholders’ rights and preferences are chiefly contractual and are defined by the certificate of designation and the corporate charter.
- Directors’ fiduciary duties to preferred stockholders operate only in a limited residual role and generally do not alter risk allocations set by the preferred contract.
- When a certificate of designation addresses dividends, distributions, and conversion mechanics, disputes about the economic consequences of corporate action ordinarily sound in contract, not loyalty-based fiduciary review.
- A court will not rewrite or enlarge preferred rights through fiduciary doctrine merely because a transaction makes the preferred bargain less favorable; relief depends on whether the transaction breaches the certificate’s terms.

## Conclusion

The court held that preferred stockholders could not reframe complaints about the value effects of Marriott’s spin-off as broad fiduciary duty violations where the relevant protections were defined by the preferred stock’s certificate of designation; any relief depended on enforcing the contractual terms, not imposing additional fiduciary constraints.


HB Korenvaes Invs., L.P. v. Marriott Corp., No. 12922, 1993 WL 205040 (Del. Ch. June 9, 1993)