Posts tagged Stockholders' Meetings

Court Of Chancery Enjoins Board Reduction Plan Prior To Director-Election

Pell v. Kill, C.A. 12251-VCL (May 19, 2016)

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.  

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Court Of Chancery Upholds Stockholder Consents

Kerbawy v. McDonnell , C.A. 10769-VCP (August 18, 2015)

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 ›

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Court Of Chancery Construes Ambiguous Voting Agreement

In re Westech Capital Corp., C.A. 8845-VCN (May 29, 2014)

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.

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Court Of Chancery Invalidates Consent For Inadequate Disclosures

Flaa v. Montano, C.A. 9146-VCG (May 29, 2014)

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

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Court Of Chancery Upholds Election Results

Red Oak Fund L.P. v. Digirad Corporation, C.A. 8559-VCN (October 23, 2013)

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.

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Court Of Chancery Explains Consent Vote Rules

Flaa v Montano, C.A. 8632-VCG (October 4, 2013)

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.

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Court Of Chancery Declines To Order Election

Canmore Consultants Ltd. v. L.O.M. Medical International Inc., C.A. 8645-VCG (September 19, 2013)

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.

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Court Of Chancery Appoints Receiver To Hold Meeting

Rich v Fuqi International Inc., C.A. 5653-VCG (June 12, 2013)

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.

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Court Of Chancery Examines Advance Notice Bylaw

Icahn Partners LP v. Amylin Pharmaceuticals Inc., C.A. 7404-VCN (April 18, 2012)

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.

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Court Of Chancery Extends Stockholder Meeting Date

Sherwood v. Chan,  C.A. No. 7106-VCP (December 20, 2011)

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.

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Court Of Chancery Invalidates Vote Blocking Device

Johnston v. Pedersen, C.A. 6567-VCL (September 23, 2011)

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.

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Supreme Court Approves Move Of Annual Meeting

Airgas Inc . v.  Air Products and Chemicals Inc., C.A. 649,2010 (November 23, 2010)

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.

 

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Supreme Court Clarifies Vote Buying Rules

Crown EMAK Partners LLC v. Kurz,  C.A. 64, 2010 (Del. April 21, 2010)

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.

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Delaware Supreme Court Clarifies when a Bylaw may Provide for Reimbursement of Proxy Expenses

CA, Inc. v. AFSCME Employees Pension Plan, C.A. 329,2008 (Del. 2008) (en banc)

In response to questions certified to it by the SEC, the Delaware Supreme Court has decided if a bylaw may mandate reimbursement of proxy solicitation expenses. No is the short answer.

As pension plans and other institutional investors seeks representation on corporate boards, they are looking for ways to make that process less expensive. Under the current Delaware law, even a successful proxy contestant will not be reimbursed for expenses unless it elects the majority of the board. Given how difficult that is to do as an outsider, few want to go through the expense of the effort. Here the bylaw proposed mandatory reimbursement for any successful election campaign, even if only one slot was filled.

The Court makes a distinction between bylaws that affect "process and procedures" of the board from bylaws that affect "substantive business decisions." Only process and procedure bylaws are valid, and a bylaw may not dictate the decision a board must make in the exercise of its fiduciary duty. As the Court acknowledges, that distinction is a tight one to make as some process bylaws affect the decision to be made.

The Court leaves open the possibility that a provision in a certificate of incorporation may mandate proxy solicitation reimbursement. However, as such a change in the certificate must be proposed by the board itself, that route seems a long road to travel.

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Court of Chancery Declines To Enjoin Meeting

Wayne County Employees' Retirement System v. Corti, C.A. 3534-CC (Del. Ch. July 1, 2008)

In this disclosure case, the Court declined to order additional disclosures for all the usual reasons. The opinion is fun to read and makes the point that stopping a merger vote when, as now, the market is so uncertain, runs a real risk the deal will unravel. Hence, it is harder to stop the vote for less than material omissions.

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