## Facts

- Shareholders of Walt Disney Productions sued Disney directors and the “Steinberg Group,” alleging an improper “greenmail” stock repurchase and related fiduciary breaches.
- In March 1984, the Steinberg Group bought over two million shares of Disney stock; Disney’s board responded with a major stock-financed acquisition that increased leverage.
- The Steinberg Group filed a federal shareholder derivative action seeking to block the acquisition; the transaction closed notwithstanding the suit.
- The Steinberg Group later increased its Disney holdings to about 12% and made a takeover-oriented proposal to buy a large portion of Disney’s outstanding shares; Disney rejected the proposal.
- Disney negotiated to repurchase the Steinberg Group’s shares at a premium, paying about $325 million (roughly $77 per share), producing about $60 million in profit to the Steinberg Group.
- Plaintiffs alleged the Steinberg Group used its representative role as derivative litigant to obtain personal gain, abandoning or compromising derivative claims in exchange for the premium repurchase.
- Plaintiffs sought preliminary equitable relief to prevent dissipation of the profit while the merits were litigated.
- The trial court issued a preliminary injunction that effectively imposed a constructive trust on the approximately $60 million profit and required periodic accountings regarding disposition of the proceeds.
- The Steinberg Group appealed the injunction.

## Issues

1. Whether plaintiffs showed a reasonable probability of proving that the Steinberg Group, by pursuing derivative litigation and related negotiations, owed fiduciary duties to the corporation and other shareholders and breached those duties by profiting from the premium repurchase.
2. Whether the trial court properly granted a preliminary injunction imposing constructive-trust-type restraints and accounting requirements to prevent dissipation of the disputed profits pending final judgment.

## Decision

- The Court of Appeal affirmed the order granting the preliminary injunction.
- The court held plaintiffs made a sufficient showing of a reasonable probability of success on a theory that the Steinberg Group assumed fiduciary obligations in a representative capacity and may have breached them by securing personal profit.
- The court concluded the trial court acted within its discretion in restraining the profit through constructive-trust-type relief and requiring accountings to preserve the disputed funds during litigation.
- The balance of hardships and risk that the profit could be dissipated supported provisional equitable relief.

## Legal Principles

- A shareholder or group acting in a derivative-plaintiff, representative capacity may be treated as owing fiduciary duties to the corporation and other shareholders with respect to the derivative claims and related dealings.
- If a fiduciary obtains profits through conduct that plausibly constitutes a breach of duty, equity may impose a constructive trust on the profits as a restitutionary remedy.
- A preliminary injunction may issue when the moving party shows a reasonable probability of prevailing on the merits and that interim relief is needed to prevent dissipation of specific funds or property, with the balance of hardships favoring preservation of the status quo.
- Accounting requirements may be ordered as ancillary relief to monitor and protect assets subject to asserted equitable claims.

## Conclusion

The court upheld a preliminary injunction preserving alleged greenmail profits where shareholders made a prima facie showing that the buyers, as derivative litigants, could be fiduciaries who breached duties by trading representative claims for personal gain, and where interim restraints were warranted to prevent dissipation of the disputed profit pending adjudication.


Heckmann v. Ahmanson, 168 Cal. App. 3d 119, 214 Cal. Rptr. 177 (Ct. App. 1985)