Court Refuses to Dismiss Suit to Invalidate Corporation's Extension of Poison Pill
Unisuper v. News Corp., C.A. No. 1699-N, 2005 WL 3529317 (Del. Ch. Dec. 20, 2005).
In the context of converting from an Australian corporation to a Delaware corporation, News Corp.'s board adopted a policy that if a shareholder rights plan was adopted following reincorporation, the plan would have a one-year sunset clause unless shareholder approval was obtained for an extension. The policy also provided that if shareholder approval was not obtained, the company would not adopt a successor shareholder rights plan having substantially the same terms and conditions. Several weeks later, News Corp.'s board adopted a poison pill in response to a specific third-party takeover threat. One year later, the board extended the poison pill without a shareholder vote, in contravention of its prior policy.
A group of institutional investors sued to invalidate the corporation's extension of poison pill and to prohibit any further extensions absent shareholder approval. The essence of Plaintiffs' suit was that an express agreement existed with Defendants under which Plaintiffs would support the reorganization in exchange for Defendants' promise that the board policy described above would not be revoked. The court found that this allegation stated a claim for both breach of contract and promissory estoppel. In doing so, the court rejected Defendants' argument that the language in the policy requiring shareholder approval for revocation was an unenforceable limitation on the board's power to manage the corporation under section 141 of the Delaware General Corporation Law. The court did dismiss, however, Plaintiffs' claims alleging misrepresentation and breach of fiduciary duty for failing to plead supporting facts.