## Facts

- Jack Robinson, a shareholder of T.I.M.E.-DC, Inc. (TIME), owned preferred stock with a charter-based liquidation preference and also held some common stock.
- In 1981, TIME transferred its real estate holdings (about $40 million in value) to a subsidiary, NLI Corp., receiving all of NLI’s common stock in exchange.
- TIME then distributed NLI stock to TIME’s common shareholders as a stock dividend/spin-off; preferred shareholders received no NLI stock unless they converted preferred to common, forfeiting accrued cash dividends.
- After the 1981 transfer and spin-off, TIME continued operating its trucking business and retained assets valued at more than $45 million.
- In 1982, a labor strike caused TIME to sell about 90% of its vehicles to raise cash and to stop operations temporarily; after the strike, TIME resumed operations on a reduced basis.
- Robinson sued (styled as a derivative shareholder action), contending the 1981 and/or 1982 transactions constituted a liquidation under the certificate of incorporation, requiring payment of the preferred liquidation preference before value could be distributed to common shareholders.

## Issues

1. Whether the 1981 real estate transfer to NLI and the distribution of NLI stock to TIME common shareholders constituted a “liquidation” triggering the preferred stock liquidation preference.
2. Whether the 1982 sale of most vehicles and temporary cessation of operations, alone or combined with the 1981 transactions, amounted to a de facto or partial liquidation triggering the preference.
3. Whether directors and affiliated entities breached fiduciary duties to preferred shareholders by structuring and executing the transactions to route value to common shareholders and affiliates.

## Decision

- The court held that the 1981 transfer of real estate to NLI and the spin-off of NLI stock to common shareholders did not constitute a liquidation of TIME under the certificate of incorporation.
- The court held that the 1982 vehicle sale and temporary shutdown, whether viewed alone or together with the 1981 transactions, did not effect a liquidation triggering preferred shareholders’ liquidation preference.
- The court entered judgment for the defendants, rejecting Robinson’s individual and derivative claims.

## Legal Principles

- A “liquidation” for purposes of a preferred stock liquidation preference generally requires a winding up of corporate affairs and cessation of business with asset disposition and distribution of proceeds, not a continuing business after asset reshuffling.
- Preferred stock rights, including liquidation preferences, are contractual and limited to rights expressly granted in the charter; courts construe such preferences narrowly.
- A transfer of assets to a subsidiary for stock, followed by a distribution of the subsidiary’s stock to common shareholders, is not necessarily a liquidation when the parent remains a going concern with substantial assets.
- A major asset sale and operational stoppage motivated by temporary distress does not constitute liquidation when the corporation resumes operations rather than discontinuing business permanently.
- Absent a triggered preference or other contractual violation, fiduciary-duty challenges to restructuring decisions are generally evaluated in light of board discretion over corporate business decisions.

## Conclusion

The court concluded that TIME’s spin-off of real-estate assets through a subsidiary and its later strike-driven vehicle sale and temporary shutdown did not amount to a liquidation under the preferred stock terms, so preferred shareholders were not entitled to liquidation-preference payments and the defendants prevailed.


Robinson v. T.I.M.E.-DC, Inc., 566 F. Supp. 1077 (N.D. Tex. 1983)