Opinion ID: 2442278
Heading Depth: 1
Heading Rank: 8

Heading: The Court of Chancery's Analysis

Text: The Court of Chancery articulated its rationale this way: Airgas's charter provision is not crystal clear on its face. A full term expires at the annual meeting in the third year following a director's year of election. The absence of a definition of annual, year, or full term leads to this puzzle. Does a full term contemplate a durationally defined three year period as Airgas suggests? The charter does not explicitly say so. Then, if a full term expires at the annual meeting, what does annual meanyearly? In turn, if annual means separated by about a year, does that mean fiscal year? Calendar year? ... The lack of a clear definition of these terms in the charter mandates my treatment of them as ambiguous terms to be viewed in the light most favorable to the stockholder franchise. Construing the ambiguous terms in that way, if the full term of directors does expire at the annual meeting in the third year following their year of election, I now turn to what is meant by the annual meeting.... Because this term is not otherwise defined in Airgas's charter or bylaws, I turn to the common dictionary definition, which defines annual as covering the period of a year or occurring or happening every year or once a year. And again, construing the ambiguous terms of the charter in favor of the shareholder franchise, annual in this context must mean occurring once a year.... Airgas similarly could have defined annual meeting elsewhere in its charter or bylaws to require a minimum durational interval between meetings (i.e. annual meetings must be held no less than nine months apart). It could have said that directors shall serve three-year terms. Had it done any of those things, then a bylaw shortening such an explicitly defined full term would have conflicted with its explicit provisions and thereby would have been invalid under Airgas's charter. Airgas, however, did not clearly define these terms. Airgas's charter and bylaws simply say that the successor shall take the place of any director whose term has expired in the third year following the year of election. As such, a January 18, 2011 annual meeting would be the 2011 annual meeting. 2011 is the third year after 2008. Successors to the 2008 class can be elected in the third year following the year of their election which is 2011. Thus, the bylaw does not violate Airgas's charter as written. [12] We agree with the Court of Chancery that the relevant Charter language is ambiguous. But as more fully discussed below, there is overwhelming extrinsic evidence that under the Annual Meeting Term Alternative adopted by Airgas, a term of three years was intended. Therefore, the January Bylaw is inconsistent with Article 5, Section 1 of the Charter because it materially shortens the directors' full three year term that the Charter language requires. It is settled Delaware law that a bylaw that is inconsistent with the corporation's charter is invalid. [13]