In August 2022, a number of amendments to the provisions of the Delaware General Corporation Law (DGCL) went into effect. One amendment of note is the extension of Section 102(b)(7)’s exculpation provisions, which now permit corporations to eliminate or limit the personal liability of specified officers for direct claims of breach of the fiduciary duty of care. As a result, several Delaware corporations have amended their charters to extend the Section 102(b)(7) clauses to those senior corporate officers specified under the newly amended statute. Naturally, these actions bring a new issue for the courts to determine: What is the requisite stockholder approval to implement these charter amendments?
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In United Technologies Corp. v. Treppel, No. 127, 2014 (Del. Dec. 23, 2014), the Supreme Court of Delaware reiterated the Court of Chancery’s wide discretion in placing reasonable conditions on a shareholder’s right to inspect corporate books and records pursuant to Section 220(c) of the DGCL. In this opinion, the Supreme Court highlights the statutory grant of discretion to the Court of Chancery to impose reasonable conditions on the inspection of corporate books and records, and discusses the body of precedent that applies that discretion.
A common condition to the exercise of the statutory inspection right is the entry into a reasonable protective order designed to protect the confidentiality of the Corporation’s information. Here, the company sought to add a provision to the protective order that would limit the stockholder’s ability to use the results of the inspection by requiring that “any claim, dispute, controversy or causes of action . . . arising out of, relating to, involving, or in connection with” be brought in a court in Delaware. Treppel refused to consent to such a provision and filed a Section 220 suit in the Court of Chancery. In a bench decision in January 2014, the Court of Chancery rejected the proposed condition and held that such a limitation “is not the type of restriction that 220(c) seeks to impose.” United Technologies appealed.
The Supreme Court reversed and remanded based upon its holding that because “the plain text of Sec. 220(c) provides broad power to the Court of Chancery to condition a books and records inspection, the court erred in determining that it lacked authority under the statute to impose the requested restriction.” The Supreme Court, however, declined the invitation to pass judgment on the particular clause at issue and remanded for the Court of Chancery to exercise its own discretion–in the first instance–in determining whether under the facts of this particular dispute such a condition might be warranted. The Supreme Court highlighted the following facts as being relevant to that determination: (1) the potential claims Treppel might file arise out of conduct that has already been challenged in a derivative suit in the Court of Chancery; (2) the company’s interest in having consistent rulings on related issues of Delaware law; (3) the fact that the company had–during the course of the litigation–adopted a forum selection bylaw specifying Delaware as the forum for any litigation related to the company’s internal affairs; and (4) the investment the company had already made in Delaware in addressing not only this matter, but also a previous derivative suit challenging related conduct.
Advisors of Delaware corporations should keep an eye on the remanded proceedings in the Court of Chancery, as this may become yet another tool in the corporate tool kit to combat multi-jurisdictional litigation and drive all litigation involving the internal affairs of a Delaware corporation to one specific jurisdiction.
As discussed in a previous post, the Delaware General Assembly has tabled its consideration of a bill that would ban fee-shifting bylaws for traditional corporations until the next legislative session. This legislative push followed the Delaware Supreme Court’s holding, in responding to certified questions of law, that “fee shifting provisions in a non-stock corporation’s bylaws can be valid and enforceable under Delaware law”. See ATP Tour, Inc., et al. v. Deutscher Tennis Bund (German Tennis Federation), et al., No. 534, 2013 (Del. Supr. May 8, 2014). The fee-shifting bylaws being considered are designed to shift the company’s costs (including attorneys’ fees) of successfully defending against litigation prosecuted by a company’s stockholders to the stockholder plaintiff. As one might imagine, such a scenario might be seen as a “game changer” with regard to shareholder representative litigation.
Continue reading “Fee-Shifting Corporate Bylaws–The Judicial Challenges Begin”
As of April 1st, the Delaware General Corporation Law contains a new § 204, which provides Delaware corporations with a statutory safe harbor procedure for ratifying acts or transactions (including stock issuances) that due to a “failure of authorization” would be void or voidable. A copy of the Synopsis and Bill are attached here.
This is an important addition to the DGCL, as it allows companies to “clean up” certain prior missteps in approving corporate events, and represents the General Assembly’s intent to overturn case law such as STARR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del. 1990), which made it difficult to ratify or otherwise seek validation on equitable grounds acts that were taken but not in strict compliance with the DGCL or the company’s governing documents.
Continue reading “DGCL Now Provides Mechanism to Ratify Certain Defective Corporate Acts”
While not necessarily “breaking news” at this point, as of August 1, 2013, the Delaware General Corporation Law was amended to make two-step mergers—tender offers with back-end mergers—easier to complete. Pursuant to new § 251(h), third-party acquirors and targets may enter into merger agreements that specifically opt in to this statute and will allow the acquiror to complete the second-stage merger without a shareholder vote if the acquiror obtains a sufficient number of shares in the opening tender offer (usually more than 50%) that its vote alone would be sufficient to approve the merger.
Continue reading “DGCL Sec. 251(h) Makes “Two-Step” Mergers Easier to Complete”