Kirschner Brothers Oil, Inc. v. Natomas Co.

Plaintiffs, all holders of Natomas Company (Natomas) preferred stock, filed similar actions against Natomas, one of its directors, and Diamond Shamrock Corporation. Plaintiffs sought to enjoin a proposed merger, as well as damages for breach of fiduciary duty. After a preliminary injunction was denied, the merger or reorganization was effected. According to its terms, each share of Natomas preferred was exchanged for a share of the preferred stock of another corporation, New Diamond. Subsequently summary judgment was entered in favor of defendants. Plaintiffs, now all former Natomas preferred shareholders, have appealed. The merger triggered several lawsuits, and this is the third such case which this court has recently considered.

I

Natomas is a California corporation. In 1980, 2.5 million Natomas $4 “Series C” cumulative convertible preferred shares were issued. The rights of the preferred shareholders were specified in a certificate of determination issued by the Natomas board of directors.

In May 1983, Diamond Shamrock Corporation, through a wholly owned subsidiary, commenced a hostile tender offer for Natomas common stock and stated its intention to propose a…