Cookies Food Products, Inc. v. Lakes Warehouse Distributing, Inc.

In 1975, L.D. Cook organized Cookies Food Products, Inc. as a barbecue sauce manufacturing and distributorship. The company was not very successful until, Duane "Speed" Herrig began distributing the barbecue sauce to retail outlets. Over the years, Herrig's distributorship agreement spurred significant growth in barbecue sauce revenue. In 1981, Herrig acquired a majority stake in Cookies and in 1982, Herrig even developed his own taco sauce! Herrig received royalties for the taco sauce and his distribution agreement with Cookies increased subsequent to his acquisition of a majority interest. The plaintiff alleges that Herrig was involved in self-dealing.

"No contract or other transaction between a corporation and one or more of its directors or any other corporation, firm, association or entity in which one or more of its directors are directors or officers or are financially interested, shall be either void or voidable because of such relationship or interest . . . if any of the following occur: 1. The fact of such relationship or interest is disclosed or known to the board of directors or committee which authorizes, approves, or ratifies the contract or transaction . . . without counting the votes . . . of such interested director. 2. The fact of such relationship or interest is disclosed or known to the shareholders entitled to vote [on the transaction] and they authorize . . . such contract or transaction by vote or written consent. 3. The contract or transaction is fair and reasonable to the corporation." The court found that there was no disclosure issue and that the contract between Cookies and Herrig was fair and reasonable to the corporation.

Fiduciary Duties & Shareholder Litigation | Duty of Loyalty