Delaware Business Litigation Report

Delaware Business Litigation Report

Category Archives: Corporate Charters

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Court Of Chancery Interprets Preferred Stock Rights

Posted in Corporate Charters
Brevan Howard Credit Catalyst Master Fund Limited v. Spanish Broadcasting System Inc., C.A. No. 9209-VCG (June 27, 2014) This is another in line of cases dealing with the statutory limit of using only “legally available funds” to redeem preferred stock.  Recognizing this limit, preferred stock provisions are evolving by adding additional requirement that make the [&hellip… Continue Reading

Court Of Chancery Explains Acquiescence Defense

Posted in Corporate Charters
Lehman Brothers Holdings Inc. v. Spanish Broadcasting Systems Inc., C.A. 8321-VCG (February 25, 2014) When may a large stockholder wait before asserting its voting rights arising out of the failure to pay dividends to preferred stock?  The short answer is that it all depends, particularly when the corporation is in the process of raising money [&hellip… Continue Reading

Court Of Chancery Explains When Actions Are Void

Posted in Corporate Charters
Klaassen v. Allegro Development Corporation, C.A. 8676-VCL (October 11, 2013) There is still an important distinction under Delaware law between actions that are void and those that are merely voidable. For only voidable actions may be ratified. This decision traces the history of that distinction with respect to calling of directors’ meetings. Only meetings called in [&hellip… Continue Reading

Federal Court Dismisses Novel Voting Rights Claim

Posted in Corporate Charters
Freedman v. Redstone, No. 12-1052-SLR (D. Del. July, 16, 2013) Under the IRS Code, executive compensation over $1,000,000 a year is not deductible absent a stockholder vote to approve a compensation plan that meets certain objective criteria.  Here the Court dealt with a complaint that alleged that the approval vote had to include the vote of stock [&hellip… Continue Reading

Court Of Chancery Clarifies Ultra Vires Statute

Posted in Corporate Charters
Southeastern Pennsylvania Transportation Authority v. Volgenau,  C.A. 6354-VCN (August 31, 2012) Section 124 of the Delaware General Corporation Code sets out the Delaware limits on the common law doctrine of ultra vires.  This decision holds that Section 124 does not limit suits for breach of fiduciary duty, but does protect corporate transactions that have closed from some attacks alleging [&hellip… Continue Reading

CCLD Follows Chancery Analysis

Posted in Corporate Charters
ALTA Berkely VI C.V. v. Omneon, Inc., C.A. N10C-11-102 JRS CCLD (July 21, 2011) On one level this is not a particularly unusual decision and that is just the point.  For here the Superior Court’s new CCLD shows that it is going to make the same studied analysis and follow the same precedent as the Delaware Court [&hellip… Continue Reading

Court Of Chancery Explains Step-Transaction Doctrine

Posted in Corporate Charters
Liberty Media Corporation v. The Bank of New York Mellon Trust Company, N.A. , C.A. 5702-VCL (April 29, 2011) affirmed, Del Supr September 21, 2011. Both Section 271 of the DGCL and many indentures provide that a corporation may not sell all or substantially all of its assets without stockholder approval.  For years, a recurring problem has been [&hellip… Continue Reading

Court Of Chancery Explains Charter Interpretation Rules

Posted in Corporate Charters
KFC National Council and Advertising Cooperative Inc v. KFC Corporation, C.A. 5191-VCS (January 31, 2011) When a certificate of incorporation is ambiguous, the Court must decide what it means.  This decision explains how a court will do that job. At least in the case of a publicly traded corporation, the Court is less inclined to use parol [&hellip… Continue Reading

Court Of Chancery Upholds Limits On Redemption Right

Posted in Corporate Charters
SV Investment Partners, LLC v. Thoughtworks, Inc., C.A. 2724-VCL (November 10, 2010) Private equity investors often want to use preferred stock to invest in a company.  In doing so the investors expect to be cashed out at some defined point.  They frequently provide for that by having the certificate of incorporation require mandatory redemption of [&hellip… Continue Reading

Court Of Chancery Explains Conversion Cap

Posted in Corporate Charters
ION Geophysical Corporation v. Fletcher International Ltd., C.A. No. 5050-VCP (November 5, 2010) This decision explains how a  ‘conversion cap’ works to prevent the holders of convertible securities from converting those securities to common stock.  These provisions thereby avoid running afoul of the SEC rules on registering ownership of stock… Continue Reading

Court Of Chancery Addresses “Blank Check Company” Agreement

Posted in Corporate Charters
Ruffalo v. TransTech Service Partners Inc., C.A. 5039-VCP (August 23, 2010) This decision addresses the rights of investors in a so-called "blank check company" where a pool of money is raised to invest in some to-be determined business.  Not surprisingly,  the investors’ rights are determined by what the certificate of incorporation provides. That may not [&hellip… Continue Reading

Court Of Chancery Limits Remedy For Charter Breach

Posted in Corporate Charters
Fletcher International Inc. v. ION Geophysical Corp.,  C.A. 5109-VCP (March 24, 2010) When a provision in a certificate of incorporation is violated, the question that often arises is what is the remedy. Often the Court  will enjoin the violation, but not always. Here the preferred stock had approval rights for certain corporate transactions. Those rights [&hellip… Continue Reading

Supreme Court Upholds Preferred Stock Provision

Posted in Case Summaries, Corporate Charters
Hildreth v. Castle Dental Centers, Inc., Del. Sup. C.A. No. 195, 2007 (November 15, 2007). A tricky issue arises when a defective certificate of incorporation causes stock to be void. Here, the preferred stock was validly authorized but there was not enough common stock to fulfill the conversion rights of the preferred. The Supreme Court held [&hellip… Continue Reading

Court of Chancery Interprets Change of Control Provision

Posted in Case Summaries, Corporate Charters, M&A
Law Debenture  Trust Company of New York v. Petrohawk Energy Corp., C.A. No. 2422-VCS (August 1, 2007). Change of control provisions are common in employment contracts and other contexts. Here the provision was in a debenture. While primarily focusing on the specific language involved, this opinion is useful to others to see how to avoid [&hellip… Continue Reading

Court of Chancery Interprets No Shop Clause

Posted in Case Summaries, Corporate Charters, Fiduciary Duty
Energy Partners Ltd. v. Stone Energy Corporation, C.A. No. 2402-N (Del. Ch. October 11, 2006). The Court of Chancery may be called upon to decide the scope of a board of director’s duties in appropriate cases. Here, the Court interpreted a common merger agreement provision that limited the board’s options in considering third party bids [&hellip… Continue Reading

Court of Chancery Holds Dividends May Not Be Forced

Posted in Breach of Contract, Case Summaries, Controlling Stockholder, Corporate Charters
Superior Vision Services, Inc. v. Reliastar Life Insurance Company, C.A. No. 1668-N (Del. Ch. August 25, 2006). This decision answers the question of when a minority shareholder may block a dividend payment pursuant to the authority to do so in the company’s certificate of incorporation. The Superior Vision charter provided that a dividend could not [&hellip… Continue Reading

Delaware Supreme Court Affirms Chancery Court Ruling that Preferred Stock Was Properly Issued

Posted in Case Summaries, Corporate Charters, Fiduciary Duty
Benihana of Tokyo, Inc. v. Benihana, Inc., No. 36, 2006, 2006 WL 2465412 (Del. Aug. 24, 2006). The Delaware Supreme Court affirmed post-trial ruling by Court of Chancery that $20 million issuance of preferred stock to a third-party holding company was authorized by the corporate charter and that the directors acted properly in approving that [&hellip… Continue Reading