## Facts

- E.C. Barton & Co. was a closely held Delaware corporation with two classes of stock: Class A voting stock and Class B nonvoting stock.
- The founder’s estate plan concentrated voting control in employees/management (Class A) while family members and other non-employees primarily received Class B.
- Plaintiffs were 14 minority holders of Class B nonvoting stock; defendants were the corporation and its board, composed of employee or former-employee directors.
- Because the stock lacked a public market, the board adopted liquidity-related arrangements largely associated with employee ownership and continuity of control, including an ESOP, repurchase/conversion arrangements tied to employee retirement/death/termination, and key-man life insurance intended to fund repurchases from estates of deceased employee-shareholders.
- The corporation also made periodic tender offers to Class B holders, but plaintiffs asserted these did not provide ongoing liquidity comparable to employee-focused arrangements.
- Plaintiffs alleged the directors breached fiduciary duties by (among other claims) maintaining a discriminatory liquidity scheme favoring employee-stockholders and leaving non-employee Class B holders effectively locked into an illiquid investment.

## Issues

1. Whether directors of a closely held Delaware corporation breach fiduciary duties by implementing liquidity arrangements that provide employee-stockholders liquidity benefits not matched for non-employee minority Class B stockholders.
2. Whether the court may require the corporation to implement a parity liquidity program or repurchase obligation for minority stockholders absent a charter- or contract-based right.
3. What standard of review applies to the challenged liquidity arrangements: business judgment or entire fairness.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery and remanded.
- The Court held the Chancery Court applied erroneous legal standards in treating the employee-focused liquidity arrangements as “inherently unfair” and in ordering a court-designed liquidity program for minority holders.
- The Court concluded the directors did not breach fiduciary duties by maintaining the challenged arrangements where the decisions were made as business judgments rationally related to legitimate corporate purposes and consistent with the corporation’s capital structure and longstanding control policy.
- The Court rejected the remedial order requiring ongoing repurchases or equivalent liquidity for non-employee Class B holders as an improper, judicially created buyout right.

## Legal Principles

- Delaware law does not recognize a general right of stockholders in a close corporation to receive liquidity or to be bought out absent contractual, charter, or statutory rights.
- Different classes or groups of stockholders may be treated differently if the board’s actions are in good faith, informed, and rationally related to legitimate corporate objectives.
- Entire fairness is not triggered merely because a board-approved program benefits employee-stockholders; absent a showing that conflicted fiduciaries controlled the process or engaged in disqualifying self-dealing, the business-judgment rule generally applies.
- Courts should not retroactively impose stockholder-level liquidity protections (including mandatory repurchases) that the parties did not secure through private ordering.

## Conclusion

The Delaware Supreme Court rejected an equal-liquidity fiduciary-duty theory for close corporations, holding that employee-centered liquidity arrangements may be valid business judgments and that courts may not impose a parity liquidity plan or buyout obligation on the corporation without a proven fiduciary breach under conventional Delaware standards or an express contractual or charter-based right.


Nixon v. Blackwell, 626 A.2d 1366 (Del. 1993)