Opinion ID: 766992
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Chancery Court Had Adequate Subject- Matter Jurisdiction

Text: 34 Johnston and Spillane correctly note that in order for collateral estoppel to apply, the court rendering the initial determination must have had adequate jurisdiction. See Baker v. General Motors Corp., 118 S. Ct. 657, 663-64, (1998) (A final judgment in one State, if rendered by a court with adjudicatory authority over the subject matter and persons governed by the judgment, qualifies for recognition throughout the land. For claim and issue preclusion (res judicata) purposes... the judgment of the rendering State gains nationwide force. (emphasis added and footnote omitted)). 35 In an action pursuant to 225 of the Delaware General Corporation Law, Delaware courts have jurisdiction to authoritatively determine the validity of a claim by one claiming to hold office as a director of a Delaware corporation. Steinkraus, 1991 WL 3922, at . The purpose of a 225 action is to provide a quick method for review of the corporate election process.... [T]he Court of Chancery has consistently limited section 225 trials to narrow issues. Box v. Box, 697 A.2d 395, 398 (Del. 1997). Johnston and Spillane argue that the chancery court was thus limited to determining the narrow issue of the right to hold corporate office, and therefore did not have the ability to determine whether Vendel and Arbitrium held a majority of TCI II's shares. 36 Johnston and Spillane rely on Rosenfield v. Standard Electric Equipment Corp., 83 A.2d 843 (Del. Ch. 1951), where the chancery court declared that a predecessor statute to 225 provided to courts the power to decide who had the right to vote the stock in dispute but not the power to make a binding determination of ownership as between the conflicting claimants unless they are parties who have been served with effective process. Id. at 845. Johnston and Spillane assert that under Rosenfield, a chancery court deciding a 225 action has no authority or jurisdiction to make a binding factual finding with respect to majority ownership. 37 But Rosenfield did not hold that the chancery court is without jurisdiction to make factual determinations with respect to stock ownership where such a determination is necessary to resolve the 225 dispute. The decision stands instead for the narrower proposition noted by Vice Chancellor Jacobs in the Fraud Action that an adjudication of ultimate title to (or voiding of) a party's stock is not a remedy available in a 225 proceeding. Technicorp Int'l II, 1997 WL 538671, at . 5 38 In this case, the chancery court was required to determine, under its 225 powers, 6 who were the lawful directors of TCI II. That in turn depended on the validity of Vendel and Arbitrium's written consent, which purported to oust Johnston and Spillane as directors and name Vendel the sole director of TCI II. Under Delaware law,any action which may be taken at any annual or special meeting . . . may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the actions so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 39 Del. Code Ann. tit. 8, 228(a). In this case, in order for the consent to have been valid, Vendel and Arbitrium must have executed it on behalf of a majority of all shares entitled to vote for directors. For the chancery court to perform its 225 function of determining who was rightfully a director, it therefore had to resolve the issue of whether Vendel and Arbitrium owned a sufficient number of TCI II shares -- here a majority - to execute the consent. 40 In resolving this issue in its final 225 order, the chancery court did not purport to do that which Rosenfield prohibits -- it did not enter an order granting Vendel legal title to any particular shares of stock. The chancery court's findings as to the majority ownership of TCI II shares, which it was competent to make, were necessary to the court's determination of the directorship question under 225. The judgment of the chancery court, having been rendered on the basis of adequate subject matter jurisdiction, gained nationwide force for collateral estoppel purposes, see Baker, 118 S. Ct. at 663-64, and may appropriately be enforced here.