Dismissal upheld in Steak ‘n Shake parent shareholder dispute

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The Indiana Court of Appeals has affirmed the grant of a motion to dismiss a lawsuit stemming from a shareholder dispute involving the parent company of Steak ‘n Shake.

In 2011 and 2012, Steak ‘n Shake parent Biglari Holdings unsuccessfully sought to create a dual-class capital structure that would re-designate common stock as Class A and Class B common stock. The move required shareholder approval, which Biglari Holdings did not have, prompting it to acquire voting control through a series of complex transactions.

Ultimately, Biglari Holdings gained control of 54.7% of its common shares after using company funds to purchase additional shares of private limited partnerships known as Lion Funds, which in turn used the funds to purchase additional shares of Biglari Holdings.

Biglari Holdings next entered into a reclassification agreement whereby it would merge with BH Merger Company to create NBHSA Inc., renamed later as the new Biglari Holdings. Shareholders of the original Biglari Holdings would become shareholders of the new Biglari Holdings, leaving the owners of Class B stock with no voting rights.

Shareholders Joseph Hipps and Eugene Protz, on behalf of themselves and a class of common shareholders, filed a consolidated class action complaint against the defendants in May 2018. They argued the voting and alleged improper treatment of the Lion Funds shares allowed CEO Sardar Biglari to gain voting control of Biglari Holdings and consummate the reclassification agreement. They alleged, among other things, that the reclassification’s approval “only serves to benefit S. Biglari at the expense of Plaintiffs and the Class.”

In response, the defendants filed a motion to dismiss the complaint, which the Hamilton Superior Court granted. In affirming the trial court’s decision, the Indiana Court of Appeals first rejected the shareholders’ argument that the Lion Funds’ voting of the shares violated Indiana Code §§ 23-1-27-2(a) and 23-1-30- 2.

“Counts I, II, and IV included breach of fiduciary duty and unjust enrichment claims related to the Reclassification Agreement, while Count VI sought declaratory relief that the Reclassification Agreement is void,” Judge Elizabeth Tavitas continued for the appellate court, which reached the same conclusion on Counts III and V. “We conclude that each of these claims, which relates to the merger, is barred by the Dissenters’ Rights Statute. Even accepting Shareholders’ facts as stated in their complaint as true, considering the allegations in the light most favorable to the Shareholders, and drawing every reasonable inference in the Shareholders’ favor, we conclude that Shareholders are not entitled to relief on Counts I, II, IV, and VI.”

The appellate court thus concluded the trial court properly dismissed the shareholder’s complaint in the case of Joseph Hipps and Eugene Protz v. Biglari Holdings, Inc., Sardar Biglari, Philip L. Cooley, Ruth J. Person, Kenneth R. Cooper, James P. Mastrian, BH Merger Company, and NBHSA, Inc., 19A-CT-101.

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