About This Blog

Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

Morris James Blogs

Related Blogs

Links

Showing 30 posts tagged Corporate Charters.

Court Of Chancery Explains Acquiescence Defense

Lehman Brothers Holdings Inc. v. Spanish Broadcasting Systems Inc., C.A. 8321-VCG (February 25, 2014)

When may a large stockholder wait before asserting its voting rights arising out of the failure to pay dividends to preferred stock?  The short answer is that it all depends, particularly when the corporation is in the process of raising money by issuing debt that the preferred stock arguably had a right to prevent.  For if the stockholder waits until after significant corporate action is taken, it may have acquiesced in that action and lost the right to object to it.

Tags: Corporate Charters

Court Of Chancery Explains When Actions Are Void

Klaassen v. Allegro Development Corporation, C.A. 8676-VCL (October 11, 2013)

There is still an important distinction under Delaware law between actions that are void and those that are merely voidable. For only voidable actions may be ratified. This decision traces the history of that distinction with respect to calling of directors' meetings. Only meetings called in violation of the bylaws or certificate of incorporation are void. Others subject to some equitable attack are still able to be ratified.

Tags: Corporate Charters

Federal Court Dismisses Novel Voting Rights Claim

Freedman v. Redstone, No. 12-1052-SLR (D. Del. July, 16, 2013)

Under the IRS Code, executive compensation over $1,000,000 a year is not deductible absent a stockholder vote to approve a compensation plan that meets certain objective criteria.  Here the Court dealt with a complaint that alleged that the approval vote had to include the vote of stock that under the corporation's certificate of incorporation did not normally have the right to vote.  The Court rejected that argument and held that only voting stock had the right to approve a compensation plan.  Hence, the DGCL was saved from the IRS.

Tags: Corporate Charters

Court Of Chancery Explains Non-Profit Corporate Law

Hockessin Community Center Inc. v. Swift , C.A. 7789-VCL (October 5, 2012)

Delaware does not have a separate corporate statute dealing with non-profit corporations. Hence, the non-stock sections of the DGCL usually apply to such entities.  It is sometimes hard to decide what parts of the DGCL do apply, however, as the integration of stock with non-stock provisions is less than clear.  This decision helpfully explains how to decide what parts of the DGCL to apply to non-stock entities

Tags: Corporate Charters

Court Of Chancery Interprets Preferred Stock Rights

Greenmont Capital Partners I LP v. Mary's Gone Crackers Inc., C.A. 7265-VCP (September 28, 2012)

This is a useful, if not surprising, example of how the Court will interpret a corporate charter regarding the rights of preferred stock.  It is also an example of the principle that if you want a veto power in the charter,  you had better be clear and complete or the charter will be changed to your detriment.

Tags: Corporate Charters

Court Of Chancery Clarifies Ultra Vires Statute

Southeastern Pennsylvania Transportation Authority v. Volgenau,  C.A. 6354-VCN (August 31, 2012)

Section 124 of the Delaware General Corporation Code sets out the Delaware limits on the common law doctrine of ultra vires.  This decision holds that Section 124 does not limit suits for breach of fiduciary duty, but does protect corporate transactions that have closed from some attacks alleging a lack of power to do the transaction.

Tags: Corporate Charters

CCLD Follows Chancery Analysis

ALTA Berkely VI C.V. v. Omneon, Inc., C.A. N10C-11-102 JRS CCLD (July 21, 2011)

On one level this is not a particularly unusual decision and that is just the point.  For here the Superior Court's new CCLD shows that it is going to make the same studied analysis and follow the same precedent as the Delaware Court of Chancery.  This will increase confidence in the CCLD and, as this decision shows, its experienced and competent judges, for business disputes.

The Delaware Supreme Court affirmed this decision on MArch 5, 2012.

Tags: Corporate Charters

Court Of Chancery Explains Step-Transaction Doctrine

Liberty Media Corporation v. The Bank of New York Mellon Trust Company, N.A. , C.A. 5702-VCL (April 29, 2011) affirmed, Del Supr September 21, 2011. Both Section 271 of the DGCL and many indentures provide that a corporation may not sell all or substantially all of its assets without stockholder approval.  For years, a recurring problem has been how to apply that law to a series of asset sales that when taken all together amount to a sale of almost all the company's assets.  This decision explains the so-called "step-transaction doctrine" under which such multiple sales may be aggregated to be considered one sale requiring stockholder approval. The short [and probably too simplistic answer] is that when the sales each have their own business justification, the Court will not aggregate them.
Tags: Corporate Charters

Court Of Chancery Again Explains Preferred Stock Rights

Fletcher International LTD v. Ion Geophysical Corp., C.A. 5109-VCS (March 29, 2011)

This is another in the line of decisions that stress that preferred stockholder rights are what is set out in the certificate of incorporation and nothing more.  Thus, if the preferred stockholders bargain for the right to consent to the sale of stock by any subsidiary, then they do not also have the right to vote on the sale of subsidiary stock by the parent.

To be fair, this brief description does not do justice to the Court's careful reasoning and simplifies the charter provisions at issue.  However, best to state the principle starkly to avoid any misunderstanding.

Tags: Corporate Charters

Court Of Chancery Explains Charter Interpretation Rules

KFC National Council and Advertising Cooperative Inc v. KFC Corporation, C.A. 5191-VCS (January 31, 2011)

When a certificate of incorporation is ambiguous, the Court must decide what it means.  This decision explains how a court will do that job.

At least in the case of a publicly traded corporation, the Court is less inclined to use parol evidence and more inclined to fall back on rules of construction.  One such rule is that it is presumed that stockholders retain the power to decide matters that are usually reserved for stockholder decision.  Hence, if a stockholder or the board claim unusual powers, they had better spell those out clearly or lose the dispute.

Tags: Corporate Charters