## Facts

- Green Giant Co. had an unusual dual-class structure: 44 shares of Class A common stock held all voting power, while roughly 429,000 shares of Class B common stock had no voting rights.
- Edith Honigman, a Michigan citizen, owned 1,570 shares of Class B stock.
- In 1960, Green Giant submitted a recapitalization plan to the voting Class A shareholders and the nonvoting Class B shareholders.
- Under the plan, both existing classes would be exchanged for a new class of voting common stock, but on different terms:
  - Each Class B share would be exchanged for one share of new voting common stock.
  - Each Class A share would be exchanged for 10 shares of convertible common stock, with conversion rights that over time could convert into shares of the new voting common stock (resulting in a “premium” allocation to Class A holders).
- The practical effect of the plan was that Class A shareholders would give up their exclusive voting control and, after conversion, would hold only a minority voting position, while Class B shareholders would receive voting stock for the first time.
- The plan was approved by 100% of the Class A shareholders and by more than 92% of the Class B shareholders.
- Honigman sued (1) individually and on behalf of all Class B shareholders and (2) derivatively on behalf of the corporation.
- Honigman challenged the “premium” component issued to Class A shareholders, alleging it was unfair and unlawful because Class A gave no consideration for the extra value embedded in the convertible shares and because the differential treatment was unfair to Class B.
- Honigman sought equitable relief, including cancellation of the premium shares (or, alternatively, rescission of the recapitalization or restitution of any excess value to the corporation).

## Issues

1. Whether issuing Class A shareholders premium convertible shares in the recapitalization was unfair or unlawful to Class B shareholders and therefore should be set aside.
2. Whether Class A shareholders gave legally sufficient consideration for the premium convertible shares by relinquishing exclusive voting control.
3. Whether the recapitalization process involved fraud, bad faith, or overreaching such that equitable relief (cancellation, rescission, or restitution) was required.

## Decision

- The court entered judgment for defendants and denied Honigman all requested relief.
- The court upheld the recapitalization plan, including the issuance of the premium convertible shares to Class A shareholders.
- The court found no fraud, bad faith, or unfair dealing by the directors or the Class A control group in proposing and obtaining approval of the plan.
- The court concluded that Class A shareholders provided adequate consideration by surrendering their exclusive voting power and accepting a substantial reduction in control going forward.
- The court treated the informed, overwhelming approval by both classes—especially the Class B vote—as strong evidence against claims of unfairness warranting rescission or cancellation.

## Legal Principles

- Courts generally will not overturn a corporate recapitalization approved through proper procedures absent proof of fraud, bad faith, or unfair dealing.
- Differential treatment between stock classes in a recapitalization is not automatically invalid; the question is whether the transaction is fair in light of the rights surrendered and benefits received.
- A controlling class’s relinquishment of exclusive voting control can constitute valid consideration supporting issuance of securities carrying a control-related premium.
- Where a recapitalization is fully presented to shareholders and approved by a substantial majority of the affected class, a challenger bears a heavy burden to show the plan should be undone through equitable remedies.

## Conclusion

In *Honigman v. Green Giant Co.*, the federal district court refused to cancel the premium convertible shares or unwind the recapitalization because the record did not show fraud or unfair dealing, and the Class A shareholders’ surrender of exclusive voting control supplied sufficient consideration for the premium component approved by overwhelming shareholder vote.


Honigman v. Green Giant Co., 208 F. Supp 754 (1961)