Stroud v. Grace

Milliken Enterprises, Inc. - a large privately held textile business - was primarily held by the Milliken family. The family entered into a General Option Agreement, where Milliken family members would have rights of first refusal to purchase Milliken stock. In addition, the Milliken's amended the bylaws of the company to insulate the Milliken family from any future proxy fight.

There are two primary standards the court looks at in evaluating the actions of the board of directions: (1) the Unocal rule, which states that directors can take defensive actions by amending bylaws and are protected by the business judgment rule during contests for corporate control if the directors have "reasonable grounds for believing that a danger to corporate policy and effecitiveness existed . . ." and if the board's response "was reasonable in relationto the threat posed"; and (2) the Blasius rule which looks to the intrinsic fairness of amendments. IN THIS CASE, the court held that there was no threat to takeover, so the Unocal standard did not apply and that the shareholders were informed, so there was no issue of intrinsic unfairness.

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