Court Opinion

ID: 9706636
Source: CourtListenerOpinion
Date Created: 2023-08-26 01:48:26.453742+00
Date Added: 2024-06-11T18:22:24.105565
License: Public Domain

HORSEY, Justice,
concurring in part and dissenting in part:
I dissent from the majority’s ruling that the supermajority voting requirement contained in Article Fourteenth of May’s charter did not apply to the proposed merger with the Hall corporations. However, I concur in that portion of the Court’s decision which finds that the shareholder vote was sufficient to satisfy the quorum requirement and the supermajority voting requirement of Article Fourteenth.
Thus, I would affirm the Court of Chancery’s construction of May’s charter’s su-permajority provision; namely, that the date for determining its application to the beneficial owner of 30% or more of May’s voting securities is the date on which the business combination proposed by such controlling owner (Craig Hall) was approved by May’s board of directors and not the date of submission of the merger agreement to the stockholders for adoption or rejection, pursuant to 8 Del.C. § 251. For a supermajority provision such as Article Fourteenth to be efficacious, it must be found to become operable at the time of board action, and thereafter to remain in place until the procedures of Section 251 have been carried out.
Article Fourteenth provides that a super-majority quorum and vote requirement for shareholder approval applies to any of the defined “Business Combinations” involving a 30% or more shareholder unless the board of directors “shall have authorized” such combination “prior to the time” that such person became a 30% holder of May’s voting securities (emphasis added). On the date that May’s board adopted and approved, and thereby “authorized” the Hall merger, Craig Hall not only owned 52% of May’s stock but stood on both sides of the transaction by virtue of his 100% control of the Hall corporations. Therefore, in my view, under the plain language of Article Fourteenth, its supermajority quorum and vote requirement then attached.
Attachment at time of board approval, rather than at time of shareholder vote, also appears to be consistent with the underlying purpose of May’s board in proposing Article Fourteenth to its shareholders in its 1977 Proxy Statement. That stated purpose was, as plaintiff notes, the protection of minority stockholders from business “transactions [that] are not effected through arms-length bargaining.” Since the terms and conditions of a corporate transaction are set by a board and not by its stockholders, the relevant date for triggering a supermajority provision should be the date of board approval of the business combination or transaction. The raison d’etre for such a provision is, as plaintiff argues, “the presumptive inability of [a] board to conduct genuine, arms-length negotiations with a controlling stockholder.”
The defendants themselves originally adopted this construction of Article Fourteenth as applied to this transaction. In *496their proxy statement, issued February 16, 1988, defendants stated, “The transaction was originally structured to comply with Article Fourteenth’s requirements; however, Mr. Hall subsequently decided to seek to obviate the applicability of the superma-jority voting requirements of Article Fourteenth by reducing his ... beneficial ownership of May common stock below 30%.” The purpose of the special meeting of May’s stockholders was also stated to be “[t]o consider and vote upon a proposal to adopt an Amended and Restated Agreement and Plan of Merger, dated November 30, 1987....” Thus, November 30, 1987 was represented to be the date that the plan of merger was authorized by the May board. Hence, Article Fourteenth by its terms attached since as of that date, and well prior thereto, Craig Hall’s holdings of May well exceeded 50% of May’s outstanding stock.
While a merger is not completed unless approved by the stockholders, the majority’s initialruling may be construed as permitting a controlling shareholder to influence, if not dominate, a corporate transaction and thereafter reduce his shareholdings to avoid the requirement of a super-majority vote to ratify. That did not happen in this case, but the precedent will be available for its application in a future case. I fear the Court’s decision will send the wrong signal that a supermajority voting provision adopted by shareholders may be avoided by an act of divestment of shares after the controlling shareholder has exercised his dominance to secure board approval of a transaction.
One standard should apply to manipulative conduct affecting corporate governance, whether practiced by a controlling insider or an outsider bent on a takeover. Such conduct should not be acquiesced in, especially where the controlling shareholder times his divestment of shares to “turn off” the supermajority voting requirement to follow, not precede, his exercise of dominance to secure board approval of the transaction. The supermajority vote protective device is indisputably designed to provide shareholders with a greater control over corporate management decisions affecting the investment interests of the minority or non-management shareholders. This being a class or derivative claim, the fact that this plaintiff appears to have a motive of self-interest in enforcing the su-permajority vote provision is irrelevant to the determination of this significant legal question. There are other minority shareholder interests involved.
Finally, it should be noted that this Court’s Order of remand dated August 15, 1988 stated that “the parties to the merger may proceed at their own risk.” This being an interlocutory appeal, there may remain for determination by the trial court several issues raised below but not decided, including the fairness of the merger in terms of price or exchange ratio and whether the shareholder vote ratifying the merger was fairly effected by stockholders who were fully informed consistent with Michelson v. Duncan, Del.Supr., 407 A.2d 211 (1979).