Opinion ID: 2156563
Heading Depth: 1
Heading Rank: 11

Heading: Weinstein Controls Mays Under Section 220(a)(3)

Text: As the foregoing discussion indicates, the term control does not have a fixed legal meaning. Its definition varies according to the context in which it is being considered, e.g., fiduciary responsibility, tort liability, filing consolidated tax returns, sale of control. [8] For that reason, control  or its absence  is frequently used to describe a judicial conclusion that is reached after a fact specific analysis. As Professor Deborah DeMott has noted, control assumes very different forms in the paradigmatic relationship between equity investors and a corporation. [9] Shareholders' control is often latent and indirect in form. Corporate law itself allocates to shareholders only the power to elect directors, and under some circumstances, to remove directors once elected, and to adopt or reject fundamental transactions proposed by directors. Holding a majority of voting power does not in itself place a shareholder in a position of active control. If the shareholder assumes no additional role within the corporation, the shareholder is not a direct participant in operational decisions or in the formulation of strategic policy. Nonetheless, shareholders hold power to control in a latent form because they may be able to remove directors, and in all events may replace the incumbents if they resign or when their terms expire. [10] In the context of imposing fiduciary responsibilities, it is well established in the corporate jurisprudence of Delaware that control exists when a stockholder owns, directly or indirectly, more than half of a corporation's voting power. [11] In addition to the election of directors, many of the most fundamental corporate changes also require approval by a majority vote of the stockholders, e.g., mergers, consolidations, sales of all or substantially all of the assets of a corporation and dissolutions. [12] Conversely, a stockholder that owns less than half of a corporation's shares will generally not be deemed to be a controlling stockholder, with concomitant fiduciary responsibilities. [13] For a stockholder that owns less than a numerical majority of a corporation's voting shares to be deemed a controlling stockholder for purposes of imposing fiduciary obligations, the plaintiff must establish the actual exercise of control over the corporation's conduct by that otherwise minority stockholder. [14] In this case, the Court of Chancery ruled that Mays was a subsidiary of Weinstein for purposes of invoking the 2003 amendment to section 220(a)(3). That ruling was based upon the 45.16% of Mays' stock that Weinstein owned, plus the six or seven percent of stock that the Weinstein Foundation owned. The Court of Chancery also concluded that [e]ven without the [F]oundation, given the fact that there is no [other] substantial shareholder, I have little trouble concluding that Weinstein Enterprises, Inc. exercises direct or indirectly the power to control the affairs of J.W. Mays, Inc. We hold that the Court of Chancery correctly concluded that whether Weinstein controlled the affairs of Mays, for purposes of being a section 220(a)(3) subsidiary, must be determined by applying the concept of control normally used for the purpose of imposing fiduciary responsibility (the fiduciary definition). Applying that definition, because Weinstein had the power to control the affairs of Mays (as distinguished from actually exercising that power), Weinstein controlled Mays for purposes of establishing Mays' status as a subsidiary of Weinstein.