## Facts

- A Delaware corporation (“pre-merger Allied”) adopted a reorganization plan that included redeeming all outstanding preferred stock before a merger completed on January 19–20, 1976.
- After the merger, the surviving entity operated under the same corporate name (“New Allied”) and continued business until it filed for Chapter XI bankruptcy in 1979.
- A putative class sued former directors of pre-merger Allied in the Court of Chancery under 8 Del. C. § 174, seeking personal liability for an allegedly unlawful stock redemption.
- Plaintiffs alleged the redemption violated 8 Del. C. § 160 by impairing capital, which would trigger director liability under § 174 to corporate creditors.
- Two named plaintiffs (Johnston and Praught) were trade creditors who extended credit only to New Allied in 1978–79, not to pre-merger Allied.
- A third named plaintiff (Baron) previously sued pre-merger Allied; in that earlier litigation, the Court of Chancery awarded attorneys’ fees and expenses to Baron’s counsel, not to Baron personally.
- The Court of Chancery granted summary judgment for the directors, concluding plaintiffs were not “creditors” entitled to sue under § 174 because they were not creditors of the corporation that redeemed the stock.

## Issues

1. Whether § 174 permits suit by persons who became creditors only of the post-merger successor corporation, rather than creditors of the corporation that redeemed the stock.
2. Whether a litigant qualifies as a § 174 “creditor” when a fee-and-expense award from prior litigation was entered in favor of the litigant’s attorneys, not the litigant.
3. Whether summary judgment was proper based solely on lack of statutory standing, without reaching whether the redemption violated § 160.

## Decision

- The Delaware Supreme Court affirmed summary judgment for the former directors.
- § 174 standing extends to creditors of the corporation whose stock was redeemed and whose capital was allegedly impaired.
- Creditors who first extended credit to the successor entity after the merger were not creditors of the redeeming corporation for § 174 purposes.
- A fee judgment entered in favor of attorneys did not make the client a creditor of the corporation under § 174.
- Because plaintiffs lacked standing, the court did not decide whether the redemption actually violated § 160.

## Legal Principles

- 8 Del. C. § 174 provides a remedy tied to unlawful stock purchase/redemption that impairs the capital of the redeeming corporation; its protection is limited to that corporation’s creditors.
- 8 Del. C. § 259(a) preserves existing creditor claims through a merger, but does not retroactively convert later-arising creditors of the surviving entity into creditors of the pre-merger corporation for § 174 standing.
- A party must have a direct creditor claim against the redeeming corporation; a judgment running only to the party’s attorneys does not establish the party as a corporate creditor under § 174.
- When statutory standing is absent, summary judgment may be granted without reaching the underlying statutory-violation merits.

## Conclusion

The court held that § 174 does not authorize successor-only trade creditors or a litigant lacking a direct judgment in his own favor to sue former directors for an allegedly unlawful pre-merger stock redemption, and it affirmed summary judgment on standing grounds alone.


Johnston v. Wolf, 487 A.2d 1132 (Del. 1985)