Benihana of Tokyo, Inc. v. Benihana, Inc.



FACTS: Aoki founded Benihana of Tokyo ("BOT") (P) and its subsidiary, Benihana, Inc. (D), which owned and operated restaurants. Aoki owned 100% of BOT (P) until he pled guilty to insider trading charges and transferred his interest to a trust to avoid licensing problems based on his convicted-felon status. The trustees of the trust were Aoki's three children and the family's attorney. BOT (P) owned 50.9% of the common stock and 2% of the Class A stock of Benihana (D). In 2003, conflicts arose between Aoki and his children. The four phildren were upset that Aoki had changed his will to give control over BOT to his new wife. At the same time, the restaurants were becoming outdated and in need of renovation. Benihana's (D) CEO met with a representative of Morgan Joseph to discuss the company's financial situation. Fred Joseph recommended to the Benihana (D) board that Benihana (D) issue convertible preferred stock, which would provide the funds needed for renovation and put the company in a better position should it need to seek additional financing from a bank. On more than one occasion, the board reviewed and considered the detailed terms, which included the issuance of preferred stock that was convertible into common stock.

ISSUE: Is there a safe harbor under section 144 (a)(1) if the material facts as to the director's relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors'? Is gross negligence reckless indifference to or a deliberate disregard of the whole body of stockholders or actions which are without the bounds of reason1?

RULE: There is a safe harbor under section 144 (a)(1) if the material facts as to the director's relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors Gross negligence is reckless indifference to or a deliberate disregard of the whole body of stockholders or actions which are without the bounds of reason.

Holding(Berger, J.) Yes. Delaware General Corporation Law § 144 provides a safe harbor for interested transactions if the material facts as to the director's reJTHtionship or interests as to the contract or transaction are disclosed or are known to the board of directors, and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors. After approval by the disinterested directors, the court reviews the transaction according to the business judgment rule, which is a presumption that in making a business decision, the directors acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company.