Taylor v. Biglari
971 F. Supp. 2d 847
S.D. Ind.2013Background
- Derivative action by Chad Taylor on BH shareholders seeks to enjoin a BH rights offering.
- Rights Offering announced February 2013; final terms set August 6, 2013; offering runs August 27 to September 16, 2013.
- BH is an Indiana corporation owning Western Sizzlin and Steak n Shake; Biglari is BH’s CEO and on the board.
- Board includes Sardar Biglari, Phillip Cooley, Kenneth Cooper, Ruth Person, William Johnson, and James Mastrian; others have ties to Biglari.
- Plaintiff alleges entrenchment transactions benefiting Biglari, including a Licensing Agreement and sale of the Lion Fund, and that the Rights Offering is designed to increase Biglari’s control.
- Plaintiff filed the motion for preliminary injunction August 16, 2013; court denies relief after two-phase analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Irreparable harm threshold satisfied? | Taylor argues rights offering causes irreparable corporate harm due to market trading and entrenchment. | Defendants contend delay and speculative harms negate irreparable injury; offering benefits the corporation. | Irreparable harm not shown; delay undermines claim. |
| Adequacy of legal remedies? | Damages insufficient to unwind or remedy harms from the rights offering. | Monetary damages and post-disposition relief could cure; unwinding is feasible with damages adecuately awarded. | Legal remedies adequate; injunction not warranted. |
| Demand futility under Aronson two-prong test? | Board is not independent; Biglari dominates; demand should be excused. | Board independence is supported; substantial evidence lacking to show compromised directors or bad faith. | Aronson test not satisfied; demand futility not established. |
| Likelihood of success on the merits? | Right Offering constitutes entrenchment harming corporate interests; board breached duties. | Offering furthers capital and is within business judgment; no clear bad faith established. | Plaintiff not likely to succeed on the merits. |
Key Cases Cited
- Girl Scouts of Manitou Council, Inc. v. Girl Scouts of U.S. of Am., Inc., 549 F.3d 1079 (7th Cir. 2008) (threshold irreparable harm requirement in injunctions)
- Annex Books, Inc. v. City of Indianapolis, 673 F.Supp.2d 750 (S.D. Ind. 2009) (sliding-scale balancing framework for injunctions)
- Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6 (7th Cir. 1992) (sliding-scale approach to irreparable harm and balance of equities)
- Tyson Foods, Inc. v. Chan, 919 A.2d 563 (Del. Ch. 2007) (due care and the business judgment rule; high hurdle for abuse of due care claims)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (two-prong demand futility test; disinterestedness and valid business judgment)
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (business judgment rule and due care standard; irrationality as outer limit)
- In re ITT Derivative Litig., 932 N.E.2d 664 (Ind. 2010) (Indiana adoption of Delaware demand futility framework)
- Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del. 2004) (independence presumptions and factors for director beholden to central figure)
- Del Monte Foods Co. S’holders Litig., 25 A.3d 813 (Del. Ch. 2011) (outside expert reliance and due care in decision-making)
- G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227 (Ind. 2001) (Indiana approach to independence and business judgment in derivative actions)