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

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Showing 103 posts in Directors.

Court Of Chancery Decides It Will Determine Stock Validity In A Section 225 Case

Posted In Directors

Southpaw Credit Opportunity Master Fund L.P. v. Roma Restaurant Holdings Inc., C.A. No. 2017-0059-TMR (Oct. 13, 2017)

In a contest over who has been elected to a board of directors under Section 225 of the DGCL, it is sometimes critical to decide if certain stock was validly issued and thus can be voted. This decision sets out a circumstance when that issue may be determined in Section 225 case even when the holders of the contested stock are not parties to the litigation.

Court of Chancery Applies Ratification To Equity Grants Under Stockholder Approved Plan

Posted In Directors

In re Investors Bancorp, Inc. Stockholder Litigation, C.A. No. 12327-VCS (April 5, 2017)

Stockholder approval of an equity compensation plan may or may not constitute ratification over awards to the directors under the plan.  When it does, the Court of Chancery will review challenges under the business judgment rule.  There are Delaware decisions coming out both ways on the issue of ratification.  As this decision illustrates, whether or not ratification applies depends on how specific the plan is that the stockholders approved (and whether the vote was informed and uncoerced).  When it comes to the level of specificity required in the plan, generally speaking, a plan that sets specific and meaningful limits on the grants could constitute ratification of grants within those limits.  This decision, where the Court applied ratification, provides guidance on just how specific the plan must be.

Court Of Chancery Applies Business Judgment Rule After Majority Tender Shares

Posted In Directors, Securities

In Re Volcano Corp. Stockholder Litigation, C.A. 10485-VCMR (June 30, 2016)

In what might be one of the most important decisions this year, the Court held that the tender of their shares by a majority of the stockholders invokes an “irrebuttable” presumption that the business judgment rule applies and, as a result, the complaint generally must be dismissed.  This extends the Delaware Supreme Court’s Corwin decision to the tender offer context.  While the tender offer aspect of this case will get the most notice, the concept of an “irrebuttable” business judgment rule may prove to be more important.  For when that form of the business judgment rule applies, only facts demonstrating waste will let a complaint survive a motion to dismiss.  Of course, waste is almost impossible to successfully allege under Delaware law.

Court Of Chancery Enjoins Board Reduction Plan Prior To Director-Election

Posted In Directors, Stockholders' Meetings

Pell v. Kill, C.A. 12251-VCL (May 19, 2016)

This is an excellent review of the law governing when the Court will enjoin board action that affects the ability of stockholders to elect directors. Such interference must: (1) be for a proper motive, (2) not be preclusive, and (3) have a compelling justification in the method chosen. Downsizing the board just before an election in the face of a proxy contest over one class of directors does not pass this test, even if done for a proper, unselfish purpose. The bottom line is that incumbent directors cannot determine the outcome of an election contest for the stockholders.  

Court Of Chancery Reverses Director Resignation

Posted In Directors

Martin v. Med-Dev Corporation, C.A. 10525-VCP (October 27, 2015)

In this unusual case, the Court of Chancery has reinstated a director who was tricked into resigning. The opinion has a good discussion of how directors may resign and when their resignation is not effective.

Court of Chancery Explains Notice Required Before Directors Act

Posted In Directors

Optmiscorp v. Waite, C.A. 8733-VCP ( August 26, 2015)

This decision concerns a soap opera with bizarre facts and alleged witness tampering that hopefully will never be repeated. It does have a good discussion on what notice the board of directors must give to a controller before taking action to oust him as CEO. None is the answer.

Court Of Chancery Explains Limits Of Ratification Defense

Posted In Directors

Calma v. Templeton, C.A. 9579-CB (April 30, 2015)

This decision reviews the history of the effect of stockholder ratification on director compensation. Briefly, stockholder ratification will cause the compensation to be subject to the business judgment standard of review when the stockholders are fully informed and approve a specific level of compensation. In other words, just approving a general compensation plan that is not specific as to the actual compensation to be received is not sufficient to shift the standard of review and instead, assuming all the directors receive the compensation at issue, they will need to meet the entire fairness standard of review. Note also that directors are deemed interested for demand excuse purposes on matters of their own compensation without a showing that it was material as to them individually.

Court Of Chancery Explains Bad Faith Claim

Posted In Case Summaries, Directors, Fiduciary Duty
In Re Novell Shareholders Litigation, C.A. 6032-VCN (November 25, 2014) When does a board act in bad faith so as to not be entitled to exculpation under a corporate charter? As this decision explains, mere mistakes in complicated negotiations do not come close to supporting a bad faith claim.

Court Of Chancery Explains Pleading Standard For Claims Against Disinterested Directors

Posted In Case Summaries, Directors
In Re Cornerstone Therapeutics Inc. Stockholder Litigation, C.A. 8922-VCG (September 10, 2014)  This is a great decision to read to understand the pleading standard that applies to a complaint that alleges a controlling stockholder transaction. Even in such a transaction, the disinterested directors are not liable absent proof of a breach of a non-exculpated breach of duty. However, that rule will only apply after a full record is made at trial [or possibly at the summary judgment stage]. At the initial motion to dismiss stage, all the complaint need allege is that entire fairness review is required because of the control the majority stockholder had over the transaction. On September 26, 2014, the Court certified an interlocutory appeal to the Delaware Supreme Court.

Court Of Chancery Explains De Facto Director Status

Posted In Directors

Bishop Macram Max Gassis v. Corkery, C.A. 8868-VCG (May 28, 2014)

This interesting decision explains the status of a de facto director and what that means in terms of the validity of actions taken by such directors.  In general, their actions are valid.   The decision is also another illustration of the duties owed by a board of a charity to its beneficiaries.

Court Of Chancery Affirms Standing in Section 225 Case

Posted In Directors

 Flaa v. Montano, C.A. 9146-VCG (February 24, 2014)

This decision affirms the standing of someone not yet elected to the board to seek relief under Section 225.

Court Of Chancery Explains When Directors May Shield Other Directors

Posted In Directors

Kalisman v. Friedman, C.A. 8447-VCL (April 17, 2013)

When may most of a Board of Directors deny another director access to the advice of counsel the majority received?  This decision answers that interesting question and concludes "not very often."  There are exceptions to that general rule, such as when there is a board committee involved whose counsel has not also been counsel to the excluded director, when the excluded director wants the information for a proven improper purpose, etc.

Court Of Chancery Explains Scope Of Section 225 Case

Posted In Directors

T.R. Investors, LLC v. Genger, C.A. 3994-CS (November 9, 2012)

 A Section 225 action is supposed to be limited to the narrow question of the composition of a corporation's board of directors.  Subsidiary questions, such as who owns what stock, may be resolved as well but are generally not binding on persons who are not parties to the litigation.  However, as this decision points out, if you are a party and consent to the Court deciding stock ownership in a Section 225 action, you are stuck with the judgment.

Court Of Chancery Explains A Director's Duty Of Loyalty While Objecting To Policy

Posted In Directors

Shocking Technologies Inc v. Michael,  C.A. 7164-VCP (September 28, 2012, revised October 1, 2012)

Everyone agrees that a director should speak up even if he disagrees with the rest of the board of directors.  But when does a director go too far in his opposition to policies he wants to change?  In this decision, the Court wrestled with this question and decided that leaking confidential corporate information to pressure the company went too far.  Significantly, the information was not about any wrongdoing.  Hence, the finding of a breach of the duty of loyalty only goes so far as a precedent.