Opinion ID: 6350020
Heading Depth: 2
Heading Rank: 1

Heading: W. Fin. Servs., S.A., 981 A.2d at 1123.

Text: 169 8 Del. C. § 271(a) (emphasis added). 170 One might logically view the statute as a restriction, rather than expansion of stockholder rights. See Hollinger Inc. v. Hollinger Int’l, Inc., 858 A.2d 342, 376 (Del. Ch. 2004) (“The origins of § 49 The question is whether the rule’s exceptions were abrogated as well. We think the better view is that, when the common law unanimity rule was superseded, so too was any insolvency exception to that rule.171 This conclusion is reinforced by the plain language of Section 271, which contains no exceptions and is not ambiguous.172 As such, the language 271 did not rest primarily in a desire by the General Assembly to protect stockholders by affording them a vote on [the] transactions previously not requiring their assent. Rather, § 271’s predecessors were enacted to address the common law rule that invalidated any attempt to sell all or substantially all of a corporation’s assets without unanimous stockholder approval.”). 171 Cases from other jurisdictions are mixed on whether similar statutes apply to a sale of all or substantially all assets by the directors of an insolvent corporation. In Mills v. Tiffany’s, the Supreme Court of Errors of Connecticut held that a Connecticut statute, providing that a corporation “may sell, lease, or exchange all its assets when that action is authorized by a vote of two-thirds of the outstanding stock of each class at a meeting duly warned and held for the purpose[,]” did not apply to a sale of all assets of an insolvent corporation made for the purpose of winding up its affairs. 198 A. at 189. That court cited Basset v. City Bank & Trust Co., which explained that the statute was intended to supersede the common law unanimity rule and thus, transactions to which that general rule did not apply at common law were “outside the scope and purpose of the statute[.]” 165 A. at 561. However, in Michigan Wolverine Student Cooperative, the Supreme Court of Michigan stated that “[t]he statute does not authorize the board of directors of a corporation to sell all or substantially all of the corporate assets whenever, in the opinion of the directors, the corporation is not a going and prosperous concern, or is in a failing condition. If a corporation is no longer a going concern the statute provides several methods whereby the corporation may wind up its affairs, dispose of its assets, and cease to exist. None of these methods authorizes a board of directors to wind up corporate affairs and dispose of the assets without action by the stockholders, or by a court.” Michigan Wolverine Student Coop., 22 N.W.2d at 888. Yet this is dicta because the Supreme Court of Michigan ultimately assumed, arguendo, there was room in the statute for such an exception, but found that the corporation was solvent, and therefore, that the common law exception did not apply (even assuming it existed and survived the enactment of Michigan’s § 271 analogue). See also 6A Fletcher Cyc. Corp. § 2949.21 (2021) (observing that “[a] question may arise concerning what bearing these statutory provisions have on the commonlaw rules regarding a corporation in financial distress or in a failing condition. Some of these statutory requirements have been held to apply even though a corporation is insolvent. On the other hand, in some jurisdictions, expressly or by implication, the requirements of such statutes have been held not to apply to insolvent corporations.” (footnotes omitted)). 172 See Balma v. Tidewater Oil Co., 214 A.2d 560, 562 (Del. 1965) (stating that “[w]ords in a statute must be given ordinary meaning[,]” and that “[c]ourts have discretion to construe statutes only when they are obscure or doubtful in their meaning. Where its language is clear and unambiguous, a statute must be held to mean that which it plainly states, and no room is [left] for construction.”). 50 of the statute should be conclusive of the General Assembly’s intent.173 In this sense, a “board only” insolvency exception is inconsistent with a statutory default majority vote rule.174 Thus, we conclude that Section 271 was intended to occupy the field and that no such insolvency exception survives, assuming arguendo, that it existed in the first place.175 As a matter of policy, unearthing a “board only” insolvency exception cited only decades ago, and never by any Delaware court, would foster uncertainty and potential inconsistency in a context where predictability is crucial for corporations that have availed themselves of Delaware law. “Our General Assembly has [] recognized the need to maintain balance, efficiency, fairness, and predictability in protecting the legitimate interests of all stakeholders, and to ensure that the laws do not impose unnecessary costs on Delaware entities.”176 Promoting stability in our DGCL is and remains of paramount 173 See Dewey Beach Enters., Inc. v. Bd. of Adjustment of Town of Dewey Beach, 1 A.3d 305, 307 (Del. 2010) (“If [a statute] is unambiguous, no statutory construction is required, and the words in the statute are given their plain meaning.”); Grand Ventures, Inc., 632 A.2d at 68 (observing that, “[i]n the absence of any ambiguity, the language of the statute must be regarded as conclusive of the legislature’s intent[,]” and in such a circumstance, “[t]he judicial role is then limited to an application of the literal meaning of the words”); Coastal Barge Corp. v. Coastal Zone Indus. Control Bd., 492 A.2d 1242, 1246 (Del. 1985) (explaining that if a statute is unambiguous, “the Court’s role is then limited to an application of the literal meaning of the words.” (citing Delaware Solid Waste Auth. V. News-Journal Co., 480 A.2d 628, 634 (Del. 1984))). 174 See also Balotti & Finkelstein, supra note 162, § 10.7 (“As a practical matter, in many instances federal bankruptcy statutes and other statutes governing creditors’ rights have displaced the common law exception by providing explicit methods for addressing proposed asset dispositions by failing businesses.”). 175 See Gimbel v. Signal Cos., Inc., 316 A.2d 599, 606 (Del. Ch.), aff’d, 316 A.2d 619 (Del. 1974) (“If the sale is of assets quantitatively vital to the operation of the corporation and is out of the ordinary and substantially affects the existence and purpose of the corporation, then it is beyond the power of the Board of Directors.”). 176 Salzberg, 227 A.3d at 136. 51 importance.177 Stability and predictability are not advanced by reading Section 271 to embody a common law exception that was never the basis of a single holding by any Delaware court nor by other courts, according to the parties, for decades. Instead, we think, the focus should be on the statute’s plain language. As we said in Salzberg, the “most important consideration for a court in interpreting a statute is the words the General Assembly used in writing it.”178 As to Section 271 in particular, this notion was reinforced by the Court of Chancery when then-Vice Chancellor Strine wrote: 177 In aid of this goal, for example, Article IX of the Delaware Constitution requires a two-thirds supermajority vote of both chambers of our General Assembly to amend the DGCL. Del. Const. art. IX, § 1 (“No general incorporation law, nor any special act of incorporation, shall be enacted without the concurrence of two-thirds of all the members elected to each House of the General Assembly.”). 178 Salzberg, 227 A.3d at 113 (quotation marks omitted). As we note above, we need not reach the question of whether a private foreclosure transaction, such as the one here, falls within the plain language of Section 271, and specifically, whether it would qualify as a “sale, lease or exchange” within the meaning of Section 271. The Vice Chancellor, relying on dictionary definitions, provided the following observations: Black’s Law Dictionary contains an extensive section on the term “sale.” The hallmarks of the various definitions include (i) the status of the parties as “buyer” and “seller,” (ii) the exchange of money or other property in return for goods and services, and (iii) a transfer or title. See Sale, Black’s Law Dictionary (11th ed. 2019). Black’s Law Dictionary distinguishes a “sale” from a “foreclosure sale,” defining “foreclosure sale” to mean “[t]he sale of mortgaged property, authorized by a court decree or a power-of-sale clause, to satisfy the debt.” In a separate entry, Black’s Law Dictionary defines the term “foreclosure” as “[a] legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.” Black’s Law Dictionary defines “exchange” to mean “[t]he act of transferring interests, each in consideration for the other,” and defines the related term “bargained-for-exchange” to mean “[a] benefit or detriment that the parties to a contract agree to as the price of performance.” As with the definition of a “sale,” the hallmarks of these definitions include a voluntary transfer of interests between similarly situated parties. 52 [O]ur courts arguably have not always viewed cases involving the interpretation of § 271 through a lens focused by the statute’s plain words. Nonetheless, it remains a fundamental principle of Delaware law that the courts of this state should apply a statute in accordance with its plain meaning, as the words that our legislature has used to express its will are the best evidence of its intent. To analyze whether the vote requirement set forth in § 271 applies to a particular asset sale without anchoring that analysis to the statute’s own words involves an unavoidable risk that normative preferences of the judiciary will replace those of the General Assembly.179 Accordingly, we clarify that there presently is no insolvency exception embedded in Section 271. Because we have concluded that the Charter provision and Section 271 are materially different, we have not looked to Section 271 to interpret the Charter. And the parties have identified no public policy that would detract from our analysis of the Charter.180 Rather, enforcing the unambiguous Charter provision is consistent with our Stream TV, 250 A.3d at 1040 (alterations in original) (emphasis omitted). See also In re E.T. Russell Co., 291 F. at 816 (“I am unable to extend the meaning of the word ‘sale,’ so that it will include an assignment for the benefit of creditors.”). 179 Hollinger Inc., 858 A.2d at 376–77 (footnotes omitted). 180 As we noted earlier, the Court of Chancery identified a single public policy concern, namely, “interpreting Section 271 as applying to a creditor’s efforts to levy on its security would undercut the value of the security interest.” Stream TV, 250 A.3d at 1042. The court cited to then ViceChancellor Strine’s transcript ruling in Gunnerman v. Talisman Capital Talon Fund, Ltd. where he observed that the DGCL distinguishes between financing transactions, mortgage transaction, collateral transactions, and sales of assets. Id. at 1043 (citing Gunnerman v. Talisman Cap. Talon Fund, Ltd., C.A. No. 1894-VCS (Del. Ch. July 12, 2006) (TRANSCRIPT)). Following this reasoning, the court, in its P.I. Opinion, reasoned that interpreting Section 271 to require a stockholder vote before an insolvent or failing corporation can transfer its assets to secured creditors would conflict with Section 272 of the DGCL. Id. at 1021. We note that Section 271 presents no barrier to the parties’ foreclosure proceedings in Superior Court (which are presently stayed pending this appeal), and no party has argued that judicial foreclosure proceedings implicate Section 271. Moreover, Section 272 is a default rule that corporations can alter in their charters, which Stream has done here. 53 policy of seeking to promote stability and predictability in our corporate laws, 181 and with recognition that Delaware is a contractarian state.182