## Facts

- Ridgewood Properties, Inc., a small publicly held real estate company, emerged from a 1985 spin-off; Triton Group, Ltd. became its controlling stockholder.
- Through repurchases from 1985 to 1992, Ridgewood increased Triton’s ownership to roughly 74.4%.
- In August 1994, while Ridgewood was short of cash, it repurchased about 83% of its outstanding common stock from its two largest stockholders, Triton and Hesperus Limited Partners.
- Ridgewood financed the repurchases by selling its principal operating assets.
- N. Russell Walden, Ridgewood’s president, director, and significant stockholder, led the board during the transactions.
- The repurchases increased Walden’s ownership from about 6.9% to about 55%, giving him majority voting control.
- A minority stockholder filed a derivative action alleging the repurchases had no valid corporate purpose, were unfair to the remaining stockholders, and constituted waste by transferring control to Walden and stripping corporate assets.
- The court dismissed an initially certified class count, tried the remaining derivative claims, and issued a post-trial decision.

## Issues

1. Whether the directors breached the fiduciary duty of loyalty by causing Ridgewood to execute issuer repurchases that shifted majority control to an insider.
2. Whether the repurchases satisfied Delaware’s entire fairness standard (fair dealing and fair price) given the conflict-laden context and control effects.
3. Whether the transactions amounted to corporate waste warranting equitable relief in a derivative action.

## Decision

- The Court of Chancery held for the plaintiff on the derivative claims.
- The court found the repurchase transactions constituted breaches of fiduciary duty owed by the directors to Ridgewood’s minority stockholders.
- The court determined the defendants failed to establish that the conflicted, control-shifting repurchases were entirely fair to the corporation and its minority stockholders.
- The court concluded the plaintiff proved entitlement to equitable relief, with the appropriate remedy to be determined in equity.

## Legal Principles

- Directors must act loyally for the corporation and its stockholders; transactions primarily benefiting an insider at the corporation’s expense can constitute loyalty breaches.
- An issuer repurchase that materially shifts control to a conflicted insider triggers stringent judicial review; defendants bear the burden to prove entire fairness.
- Entire fairness requires proof of both fair dealing (process, negotiation, consideration of alternatives, approvals) and fair price (economic terms and practical effect on the corporation and minority holders).
- A board’s decision to pursue a control-altering structure, while rejecting less self-interested alternatives, supports a finding of unfair dealing and disloyal purpose.
- Financing a repurchase by selling principal operating assets, coupled with an insider’s entrenching control gain, can support findings of disloyalty and unfairness to minority stockholders.

## Conclusion

The Court of Chancery held that Ridgewood’s 1994 stock repurchases, which were financed by selling key assets and resulted in an insider obtaining majority control, were not shown to be entirely fair and therefore breached the directors’ fiduciary duty of loyalty, entitling the corporation to equitable relief in the derivative action.


Strassburger v. Earley, 752 A.2d 557 (Del. Ch. 2000)