Opinion ID: 1548673
Heading Depth: 1
Heading Rank: 5

Heading: DTC's And Broadridge's Roles in TBE Consent Solicitation

Text: TBE conducted a broad-based solicitation in which it sought to obtain consents from a large number of individual EMAK stockholders. Since EMAK's shares were publicly traded for fourteen years, a significant number of EMAK stockholders owned their shares in street name. This practice is summarized in a leading treatise: The vast majority of publicly traded shares in the United States are registered on the companies' books not in the name of beneficial owners i.e., those investors who paid for, and have the right to vote and dispose of, the sharesbut rather in the name of Cede & Co., the name used by The Depository Trust Company (DTC). Shares registered in this manner are commonly referred to as being held in street name. . . . DTC holds the shares on behalf of banks and brokers, which in turn hold on behalf of their clients (who are the underlying beneficial owners or other intermediaries). [3] The roles of DTC and the Investor Communications Solutions Division of Broadridge Financial Services, Inc. (Broadridge) are important in this case. Broadridge's role has been summarized as follows: For many years, banks and brokers maintained their own proxy departments to handle the back-office administrative processes of distributing proxy materials and tabulating voting instructions from their clients. Today, however, the overwhelming majority have eliminated their proxy departments and subcontracted these processes out to [Broadridge]. For many years, these proxy processing services were provided by Automatic Data Processing, Inc. (ADP), but on March 31, 2007, ADP spun off its Brokerage Services Group into a new independent company, Broadridge, which now provides these services to most banks and brokers. To make these arrangements work, Broadridge's bank and broker clients formally transfer to Broadridge the proxy authority they receive from DTC (via the [DTC] Omnibus Proxy) via written powers of attorney. On behalf of the brokers and banks, Broadridge delivers directly to each beneficial owner a proxy statement and, importantly, a voting instruction form (referred to as a VIF) rather than a proxy card. Beneficial owners do not receive proxy cards because they are not vested with the right to vote shares or to grant proxy authoritythose rights belong only to the legal owners (or their designees). Beneficial owners merely have the right to instruct how their shares are to be voted by Broadridge (attorney-in-fact of the DTC participants), which they accomplish by returning a VIF. [4] DTC is generally regarded as the entity having the power under Delaware law to vote the shares that it holds on deposit for the banks and brokers who are members of DTC. Through the DTC omnibus proxy, DTC transfers its voting authority to those member banks and brokers. The banks and brokers then transfer the voting authority to Broadridge, which votes the shares held at DTC by each bank and broker in proportion to the aggregate voting instructions received from the ultimate beneficial owners. For the TBE Consent Solicitation, Broadridge collected, recorded, and totaled the voting instructions it received from the beneficial owners of EMAK shares held in street name. There is no dispute that the banks and brokers properly authorized Broadridge to vote the EMAK shares held on their behalf by DTC. What no one ever obtained, and what DTC never provided, was the DTC omnibus proxy. The evidence conflicts as to who had the responsibility to get the DTC omnibus proxy. The Court of Chancery found that neither party clearly had the obligation to secure the DTC omnibus proxy, although both could have done more, neither acted improperly or inequitably with respect to this aspect of the case.