Delaware Business Litigation Report

Supreme Court Interprets an Alleged Irrevocable Proxy and Finds It Does Not Run with Shares and Bind Subsequent Owner

Daniel v. Hawkins, No. 184, 2022 (Del. Jan. 6, 2023)
Through an irrevocable proxy, the appellant held voting power for 100 shares of a partnership. The proxy had been a tool to immediately transfer the shares' voting power to the appellant, away from a beneficial owner experiencing legal troubles, to minimize the risk of tainted control harming the business pending transfer of beneficial ownership. Years later, with beneficial ownership having transferred for 75 shares, the appellee sought to purchase those shares free of the proxy. The appellant argued that the proxy was irrevocable and could not be relinquished. Appellee filed suit in the Court of Chancery, seeking a declaratory judgment that the irrevocable proxy did not apply to subsequent third-party owners. The Court of Chancery determined that the irrevocable proxy's plain language did not establish a grant of agency authority that ran with the shares.

The Supreme Court affirmed, explaining that in light of the atypicality and significance of separating voting power and economic interest, Delaware public policy and law require that an irrevocable proxy be clear and unambiguous for the proxy to run with the shares. Addressing the appellant's proposed contractual interpretations based on word choice and grammar, the Supreme Court explained that although some of his interpretations were reasonable, any competing reasonable interpretations indicated ambiguity in the irrevocable proxy and that required the Court to construe it against the appellant.

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