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Chancery Finds Stockholder Conferred a Substantial Corporate Benefit by Challenging the Joint Vote of Two Classes of Common Stock under Section 242(b)(2) of the DGCL

Garfield v. Boxed Inc., C.A. No. 2022-0132-MTZ (Del. Ch. Dec. 27, 2022).
Section 242(b)(2) of the DGCL requires the separate approval of different classes of stock for charter amendments that, inter alia, “increase or decrease the aggregate number of authorized shares of such class…” Section 242(b)(2) permits corporations to opt-out of this separate class approval requirement via a charter amendment – but any such amendment also must be approved by a separate class vote. This decision awards attorneys’ fees under the corporate benefit doctrine to a stockholder who questioned the validity of Class A and Class B common shares voting together on proposed amendments triggering these requirements, which then caused the corporation to provide separate class votes. 

In response to the stockholder’s claim for attorneys’ fees, the corporation argued that no fee was warranted because the stockholder’s challenge to the proposed vote was not meritorious. Specifically, the corporation argued that the Class A and Class B common shares were separate series of the same class of common stock, in which case no separate vote would be required, rather than distinct classes. The Court interpreted the certificate of incorporation. It referred to the stock as separate classes, and it adhered to Section 102(a)(4) and 151’s requirements for authorizing classes of stock (i.e., by listing the total number of authorized shares and their par value), which do not apply to authorize different series within a class. Having found that the Class A and Class B common shares were different classes, the Court found that the plaintiff conferred a substantial benefit on the corporation by preserving stockholders’ statutory voting rights and the certainty of the company’s capital structure. It determined the appropriate award to be $850,000.

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