Fox v. MGM Grand Hotels, Inc.

Opinion

KINGSLEY, Acting P. J.

Plaintiff brought a class action on behalf of the holders of unsecured debentures issued by Metro-Goldwyn-Mayer, Inc. (MGM), the predecessor of defendants MGM Grand Hotels, Inc. (Hotels) and Metro-Goldwyn-Mayer Film Company (Film Co.). In 1980, several years after the debentures were issued, MGM decided to divide its business into two separate corporations—one to operate the hotel business and one to operate the business of producing films. Pursuant to that decision, MGM transferred all of its assets involved in the film business to a new corporation (Film Co.), in exchange for all of the stock in that new corporation. MGM then, having changed its corporate name to MGM Grand Hotels, Inc. (Hotels), distributed the Film Co. stock to its shareholders in proportion to those shareholders’ proportionate interest in MGM.

The theory of the complaint is that that series of transactions resulted in a decline of the market value of the debentures, since it left Hotels with only about 50 percent of its former assets and the debentures were no obligations of Film Co. The complaint is in four causes of action: the first alleging fraud; the second a fraudulent transfer; the third for breach of fiduciary duty; and the fourth against the majority stockholders of MGM for inducing a breach of fiduciary duty by MGM. Hie trial court sustained a general demurrer to all four causes of action, with leave to amend. Plaintiff elected to stand on the complaint and the action was dismissed.

[527]

I

We are here treated to lengthy discussions of the cases which deal with the duty of a corporate debtor toward its creditors. From our reading of those cases, we conclude as follows: a corporate creditor, like any other unsecured creditor, runs the risk that his debt may not be paid because of a decline in the general business climate, because of poor management by the debtor, or disaster to the debtor from fire

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or theft. He does have a right not to have the debtor deliberately act for the purpose of impairing the creditor’s legitimate business expectations. But those expectations are only that the debt, with interest, will be paid when due. He has no enforceable right to have the market value of his debt unimpaired, so long as he is paid interest and principal when due.