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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 30 posts in Stockholders' Meetings.
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.
Larkin v. O’Connor, C.A. 11338-CB (Transcript) (March 22, 2016)
This is an interesting decision because it explains the requirements for stockholder ratification of grants under a stock option plan. The stockholders have to vote not just on the plan itself, but on the actual grants for ratification of those grants to occur. Merely mentioning the actual grants in the proxy statement without having a separate vote on those grants themselves is not sufficient to constitute ratification.
Given the sanctity of the stockholder vote in Delaware law, it would be surprising if the Court of Chancery would ever reverse such a vote or the use of stockholder consents to take corporate action. More ›
This is an example of what happens when a stockholders agreement is badly drafted and the Court has to try to construe what it means. The opinion is interesting for the Court's method of analysis, using drafting history, presumptions found in corporate law and other interpretive aids.
In soliciting consent there is a duty to be truthful and to disclose the material facts. Here, the Court invalidated a written consent for want of full disclosure over how the consent was obtained. The decision also has an interesting discussion of what constitutes impermissible vote-buying
In this unusual case, the Court of Chancery upheld the results of a proxy contest. The opinion is noteworthy for its explanation of the tests the Court will use in ruling on a challenge based on claims the election was unfairly conducted.
When can you challenge the right to consent to corporate action? This decision explains the rules that govern such challenges, particularly when it is claimed that the consent is valid on its face.
This is the first decision under Section 223(c) of the DGCL to decide whether to order an election to fill the vacancies on a board that has less than a quorum of directors in office. The Court held that the stockholders had the burden to show an election was appropriate and that due to the company's precarious finances, it was best not to hold the election but let the incumbent board members fill the vacancies.
What happens when the Court orders the holding of an annual meeting and the company refuses to do so? In this decision the Court of Chancery appointed a receiver with the authority to hold the meeting once the receiver determines how to do so without running afoul of the SEC rules requiring audited financial statements the company presently does not have.
An advance notice bylaw requires stockholders to tell their company substantially in advance of a stockholders' meeting if they want to nominate someone to to be elected as a director at that upcoming meeting. But, under the Hubbard decision, sometimes the Court of Chancery will set aside such a bylaw when it is used in a way the Court finds is inequitable. Here Carl Icahn is claiming that the Board changed its basic business strategy after the advance notice bylaw deadline has passed and it would be inequitable under those circumstances to bar him from nominating a slate of directors to bring the company back on course. The Court has agreed to hear his claim. The outcome will be interesting.
There is nothing more sacred in Delaware corporate law than the right of the stockholders to elect directors. This decision illustrates that point and what the Court of Chancery will do when it feels that right has been improperly infringed, including extending the meeting date.
This is a good discussion of the "enhanced scrutiny" that the Court of Chancery applies to board action that affects the right to vote. Such action must have a "compelling justification" and the simple desire to avoid being thrown out of office, even by scalawags, is not enough. Hence, here the Court invalidated the provisions of a specially issued series of preferred stock that had the right to block the removal of the board of directors.
In this decision, the Delaware Supreme Court reversed a decision by the Court of Chancery and held that in a staggered board, directors must serve the 3 year term to which they were elected. Hence a Chancery decision permitting the meeting date to be moved up to replace directors sooner than a full 3 year term was invalid.
This important decision focuses on the increasingly controversial issue of vote buying in stockholder elections. In general, vote buying occurs when a party acquires the right to vote stock it does not have legal title to or hold the beneficial interest in that stock. It just buys the right to vote the stock. On the other hand, when the buyer acquires the economic interests represented by the stock along with the right to vote it, that is not vote buying even if he does not then acquire legal title to the stock. The distinction may be critical as votes acquired by vote buying are invalid.
Exactly how this will play out is not clear. For example, if the buyer obtains the right to vote and all appreciation in the value of the stock, but not title, that seems to satisfy the test and is not vote buying. That is so even if he never has title transfererd to him or, possibly, even if all the buyer's rights revert to the seller a moment after a stockholder election. We shall see.