Document: TR Investors, LLC v. Genger, C.A. No. 3994-VCS (Del. Ch. July 23, 2010)

TR Investors, LLC and other capital investors of Trans-Resources, Inc. brought an action to have the Chancery Court determine control of the Trans-Resources board pursuant to 8 Del. C. § 225.  In 2004, Genger, the former founder and CEO of Trans-Resources, improperly transferred shares of Trans-Resources to trusts for his children in violation of a stockholders agreement with the capital investors.  After discovering the transfer in 2008, the capital investors reached an agreement with the Genger and the trusts to buy back all of the wrongfully transferred shares, giving the capital investors a majority of the Trans-Resources stock.  When the capital investors reconstituted the Trans-Resources board of directors, Genger challenged the reconstitution claiming that proper notice of the wrongful transfer was given in accordance with the stockholders agreement and that the capital investors nonetheless ratified the 2004 transfers when it acquired the shares in 2008.  The Chancery Court rejected the Genger’s claims and found that the capital investors controlled the Trans-Resources board.  Interpreting the stockholders agreement, the Court found that Genger had failed to comply with the notice requirement under the terms of the stockholders agreement.  Furthermore, Vice Chancellor Strine found the capital investors clearly reserved their position that the 2004 transfers were void and therefore did not ratify the transfers when it acquired the shares in 2008.  Accordingly, the capital investors retained the shares and control of the board.