## Facts

- Harold W. Kurtz formed Lombard-Wall Group, Inc., a Delaware corporation, and initially owned all shares.
- In a later transaction, Abraham Zion acquired all Class A stock, while Kurtz retained all Class B stock.
- Zion and Kurtz executed a shareholder agreement providing that the corporation would not “engage in any business or activities” without consent of the Class A holders.
- The agreement included a Delaware choice-of-law clause and a promise by Kurtz to take any further actions necessary to implement the agreement, including corporate formalities.
- The corporation’s certificate of incorporation did not include the Class A veto right, and the corporation did not complete statutory steps for formal Delaware close-corporation status.
- A board controlled by Kurtz approved two agreements (an “interest agreement” and an “escrow agreement”) over Zion’s objection, imposing significant obligations on the corporation.
- Zion sought declaratory and injunctive relief to invalidate the two agreements as inconsistent with the shareholder agreement.
- The trial court denied Zion summary judgment and allowed defendants’ reformation counterclaim to proceed.
- The Appellate Division reversed, granted Zion partial summary judgment, and dismissed the reformation counterclaim.
- The New York Court of Appeals heard cross-appeals, applying Delaware corporate law per the contract.

## Issues

1. Whether Delaware law permits enforcement of a shareholder agreement that substantially restricts board discretion by requiring minority Class A consent before the corporation engages in any “business or activities,” when the restriction is not in the certificate of incorporation and close-corporation formalities were not completed.
2. Whether the board’s approval of the challenged agreements without Class A consent breached the shareholder agreement, warranting equitable relief.

## Decision

- The court enforced the shareholder agreement under Delaware law.
- The court held the Class A consent requirement was valid and not contrary to Delaware public policy, despite the charter’s omission and the lack of formal close-corporation status.
- The court held the board-approved agreements executed without Zion’s consent violated the shareholder agreement and could not stand.
- The court effectively sustained the Appellate Division’s summary judgment relief for Zion and rejected the counterclaim seeking reformation.

## Legal Principles

- A contractual choice-of-law clause selecting Delaware corporate law may control disputes over internal governance arrangements in a Delaware corporation litigated elsewhere.
- Under Delaware law, unanimous shareholder agreements in a closely held corporation may restrict or reallocate managerial authority, including by granting veto rights, if the arrangement is not illegal and does not directly conflict with the certificate of incorporation.
- Failure to complete statutory close-corporation formalities does not automatically render a consensual shareholder governance arrangement unenforceable as between the parties when the agreement is otherwise consistent with Delaware law.
- Courts may grant equitable relief, including injunctive relief and specific enforcement, to protect bargained-for shareholder veto rights, particularly where a party promised to take further steps necessary to implement the agreed control structure.
- Broad contractual language barring corporate “business or activities” without specified shareholder consent can cover the corporation’s entry into transactions that impose substantive obligations.

## Conclusion

Applying Delaware law, the court held that a bargained-for shareholder agreement granting Class A holders a consent right over corporate actions was enforceable despite the restriction’s absence from the charter and the corporation’s failure to perfect close-corporation status, and it invalidated board-approved transactions undertaken without the required consent.


Zion v. Kurtz, 50 N.Y.2d 92 (N.Y. 1980)