## Facts

- Nu‑West Industries, Inc. had issued Class A preferred stock with dividend and redemption terms set out in its certificate of incorporation.
- The Class A preferred carried a cumulative dividend that accumulated at an annual rate of $11 per share.
- On December 13, 1996, Nu‑West redeemed the Class A preferred stock for $100 per share plus what it calculated as accrued and unpaid dividends, paying a total of $171.50 per share.
- Nu‑West’s dividend calculation included amounts for the prior six years and an additional $5.50 per share reflecting the last six months of 1995.
- Nu‑West did not include any amount for dividends for the period January 1, 1996 through December 13, 1996.
- The certificate also addressed other events affecting the preferred, including an exchange of preferred shares for debentures (providing that dividends would cease to accrue as of the exchange date) and liquidation (entitling preferred holders to unpaid dividends “as accrued” at the time of distribution).
- A group of preferred shareholders filed a class action challenging the redemption price calculation; Roger B. Smith served as the named plaintiff for the class.
- The complaint’s primary claim (Count I) sought a contractual determination of the proper redemption price under the certificate; a fiduciary-duty claim (Count II) was later voluntarily dismissed.
- After class certification, the parties filed cross-motions for summary judgment on the charter-interpretation question: whether dividends accrued daily/continuously (supporting a pro rata payment through the redemption date) or only accrued in full at year-end (supporting no payment for the partial 1996 period).

## Issues

1. Did Nu‑West’s certificate of incorporation require payment of cumulative preferred dividends accrued from January 1, 1996 through the December 13, 1996 redemption date as part of the redemption price?
2. Under the certificate’s language, did dividends “accrue” continuously over time (making a pro rata amount owing at redemption), or only come into existence at the end of a full annual period?

## Decision

- The Court of Chancery granted the plaintiff class’s motion for summary judgment on Count I and denied defendants’ cross-motion.
- The court held that, under the certificate, dividends accrued through the redemption date and could not be treated as accruing only at year-end.
- Nu‑West was ordered to pay additional consideration for each redeemed share reflecting the dividend amount attributable to January 1, 1996 through December 13, 1996 (approximately $10.43 per share).

## Legal Principles

- Preferred stock rights are contractual; the certificate of incorporation controls the scope of dividend and redemption rights.
- When a charter requires payment of “accrued and unpaid dividends to the date of redemption,” that phrasing indicates accumulation up to the redemption date, not only at a year-end checkpoint.
- Charter language stating that dividends “cease to accrue” upon a specified transaction date (such as an exchange or liquidation distribution) is consistent with dividends accruing before that date.
- “Accrual” and “payment” are distinct: limits on when dividends are payable (including conditions tied to an accounting period) do not necessarily eliminate ongoing accrual if the charter text treats dividends as accumulating over time.
- Summary judgment is appropriate where the material facts about the redemption are not disputed and the dispute is a pure question of interpreting the charter’s text.

## Conclusion

Smith v. Nu‑West Industries, Inc. held that Nu‑West’s Class A preferred dividends accrued through the December 13, 1996 redemption date under the certificate of incorporation, requiring the company to include a pro rata dividend amount for the partial 1996 period in the redemption price and to pay preferred holders additional consideration per share.


Smith v. Nu-West Industries, Inc., 2000 WL 1641248 (2000)