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Supreme Court Finds Contractually Required Board Committee Determination Under Stock Option Agreements Did Not Bar Judicial Review
Terrell v. Kiromic Biopharma Inc., No. 299, 2022 (Del. May 4, 2023)
This dispute between a company and a former director involved the meaning of a stock option agreement and option grant notice. The Court of Chancery had found that, under a contractual alternative dispute resolution provision, the dispute was to be resolved in accordance with a board committee’s interpretation of the relevant documents. The trial court stayed the action for that purpose. After the committee resolved the issue in the company’s favor, the trial court promptly dismissed the complaint for lack of subject matter jurisdiction. On appeal, the Supreme Court found no error in the trial court’s stay to allow the committee’s determination in the first instance but reversed and remanded for the trial court to review the matter before dismissing the action. The Supreme Court explained that the provision “is an expert determination, not an arbitration, and because it requires the Committee to reach legal determinations, not issue findings of fact within its area of expertise, the Court of Chancery is not required to defer to the Committee's conclusions." Thus, the trial court was required to engage in a de novo interpretation of the agreements.