(CN) - The Delware Chancery Court refused to dismiss claims that Safety-Kleen called shares at below market value to trick competitor Clean Harbors Inc. after the company acquired Safety-Kleen stock.
     The Delaware Chancery Court found that Clean Harbors had "alleged facts that conceivably would support a conclusion that the call price was set below fair market value and that the company acted in bad faith by setting the call price at that value."
     "Assuming the purchaser's allegations are true, this case involves an arguably clever move made by the company that left the purchaser, a competitor, empty-handed and tricked out of the benefit of its bargain," Vice Chancellor Donald Parsons' ruling states.
     At the tail-end of 2010, former Safety-Kleen senior employee Frederick Florjancic offered Clean Harbors his stock in order to exercise his options before they expired.
     On December 23, 2010 the transaction was completed after Clean Harbors agreed to purchase Florjancic and five other former Safety-Kleen employees' stock for $7.50 per share.
"Later that same day, Safety-Kleen sent written notice to Clean Harbors that it was exercising its call rights on the shares pursuant to the option agreement under which the shares were issued," th ruling states. "Pursuant to this right, Safety-Kleen called all of the shares acquired by Clean Harbors in the transaction at $7.50 per share, the same price Clean Harbors had paid for the shares just hours before."
     Clean Harbors claimed that Safety-Kleen called the shares at below market value in violation of the terms of the contracts that govern the shares.
     But in its motion to dismiss, Safety-Kleen argued that the call price was based on several arm's length negotiated sales of stock.
     But Parsons sided with Clean Harbors, finding that it had sufficiently alleged that the shares were sold under "compulsion," or in other words: that selling shareholders were under pressure to sell before their options expired.
     "There is no dispute that Safety-Kleen's board did not undertake an independent analysis of the fair market value of its shares. Instead, it relied entirely on the fact that Clean Harbors purchased the shares from the selling shareholders on the same day at a negotiated price of $7.50. As previously discussed, however, Clean Harbors conceivably could succeed in proving that the $7.50 price was established under compulsion and is materially below the fair market value of an unencumbered share," Parsons wrote.
     "Because it also is conceivable that the value of an unencumbered share is what Safety-Kleen contractually was required to determine, Safety-Kleen's alleged failure to look beyond the price set for the shares subject to call rights further supports the conclusion that Clean Harbors conceivably could prove that Safety-Kleen did not act in good faith. Stated differently, Safety-Kleen conceivably could have viewed $7.50 as a submarket price and, yet, designed to buy back its stock at that value by lulling Clean Harbors into the transaction and keeping its plans regarding the call rights close to the vest," the opinion states.
     Parsons also found that Clean Harbors made claims that "conceivably could support a claim for breach of the implied duty of good faith and fair dealing, even if they did not support an express breach of contract claim."