Opinion ID: 1548673
Heading Depth: 1
Heading Rank: 15

Heading: Written Consent Must Be Executed by a Record Holder

Text: The defendants also argue the TBE Consents cannot be effective because of the absence of a DTC omnibus proxy. Section 228(a) of the DGCL provides: Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action 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 and shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. [24] Section 228(c) requires that each consent bear the date of signature of each stockholder and that to be effective, consents signed by a sufficient number of holders must be delivered to the corporation within 60 days of the earliest dated consent. [25] In the Court of Chancery, the plaintiffs' initial response to the lack of a DTC omnibus proxy was to argue that a written consent need not be executed by a stockholder of record. In two decisions, Freeman v. Fabiniak [26] and Grynberg v. Burke, [27] the Court of Chancery previously held that only a stockholder of record can execute a written consent. The plaintiffs asked the Court of Chancery not to follow the holdings in those prior opinions, which the plaintiffs contend betray an unfounded hostility towards the then-novel use of written consents in control contests and an unjustified preference for the traditional stockholder meeting. [28] In this case, the Court of Chancery rejected the plaintiffs' arguments both as a matter of statutory analysis and for policy reasons. Instead it adhered to the holdings of Freeman and Grynberg that only a stockholder of record can execute a written consent. Section 219(c) of the DGCL provides that [t]he stock ledger shall be the only evidence as to who are the stockholders entitled by this section . . . to vote in person or by proxy at any meeting of stockholders. [29] The ledger is a compilation of the transfers by and to each individual shareholder, with each transaction separately posted to separately maintained shareholder accounts. [30] The ledger is different from a stocklist, which is a compilation of the currently effective entries in the stock ledger. [31] Under Section 219(a), at least 10 days before every meeting of stockholders, the officer in charge of the stock ledger must prepare and make . . . a complete list of the stockholders entitled to vote at the meeting. [32] More than fifty years ago, this Court held that only registered stockholders may exercise the power to vote in a Delaware corporation. [33] In the American Hardware case, Savage Arms sought stockholder approval of a stock-for-stock acquisition and sent out the notice of meeting and proxy statement sixteen days before the meeting date. American Hardware objected, arguing that because one-third of the outstanding shares were held in brokers' accounts, the time allowed for all the stockholders to receive and consider the opposition's proxy material was insufficient. [34] This Court rejected that argument, stating that [t]he answer to this point is simple. [35] Under the General Corporation Law, no one but a registered stockholder is, as a matter of right, entitled to vote, with certain exceptions not pertinent here. If an owner of stock chooses to register his shares in the name of a nominee, he takes the risks attendant upon such an arrangement, including the risk that he may not receive notice of corporate proceedings, or be able to obtain a proxy from his nominee. The corporation, except in special cases, is entitled to recognize the exclusive right of the registered owner to vote. . . . The corporation has ordinarily discharged its obligation under Delaware law when it mails notice to the record owner. [36] Section 228(a) incorporates the concept of record ownership that governs voting at a meeting of stockholders by framing the taking of action by written consent in terms of the holders of outstanding stock who would have sufficient votes to take similar action at a meeting where all shares entitled to vote are present. In this case, the Court of Chancery held section 228 is thus appropriately interpreted as requiring that a written consent be executed by a stockholder of record. The Court of Chancery also relied on section 228(e) to reinforce that interpretation. [37] Section 228(e) requires that prompt notice of corporate action taken by less than unanimous written consent be provided to non-consenting stockholders who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders . . . were delivered to the corporation. . . . [38] By defining the notice obligation for written consents in terms of what would be required for a hypothetical meeting, section 228(e) strengthens the connection between voting by consent and voting at a meeting. The Court of Chancery also relied on section 212(b), which provides that [e]ach stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy. . . . [39] In this case, the Court of Chancery explained why it decided to adhere to the holdings in Freeman and Grynberg that a written consent must be executed by a stockholder of record. By treating stockholders identically for purposes of granting proxy authority, regardless of whether the vote is at a meeting or by written consent, section 212(b) indicates that the same principles should apply in both instances. Just as only a stockholder of record can vote at a meeting, only a stockholder of record can execute a written consent. As a matter of Delaware public policy, there is much to be said for requiring a written consent to be executed by a record holder, which allows the corporation or an inspector of elections to determine from readily available records whether the consent was valid. Certainty and efficiency are critical values when determining how stockholder voting rights have been exercised. Williams v. Sterling Oil of Okla., Inc., 273 A.2d 264, 265-66 (Del.1971); N. Fork Bancorp., Inc. v. Toal, 825 A.2d 860, 868 n. 19 (Del.Ch.2000); Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 668 (Del.Ch. 1988). This is particularly true for consents, which are effective upon delivery to the corporation of a sufficient number of valid consents. [40] The Court of Chancery's holding that a written consent must be executed by a stockholder of record did not end its analysis of how to define who is a record holder on the stock ledger.