In an en banc decision, the Delaware Supreme Court reversed, in pertinent part, the post-trial decision by the Court of Chancery in favor of plaintiffs-insurgents regarding competing written consent actions.

Plaintiffs-below sought to take control of the company’s seven-person board by removing three directors and electing a replacement slate.  Defendants-below, including the holder of the Company’s preferred stock, who was Ashby & Geddes’ client, challenged the validity of the consents because, on the eve of the expiration of the plaintiffs’ consent solicitation, one of the plaintiffs bought a dispositive block of shares that were restricted by an agreement with the Company prohibiting any transfer.  The Court below held, and the Supreme Court affirmed, that this was not unlawful vote buying. The Supreme Court reversed, however, on the grounds that the purchase of the restricted shares violated the anti-transfer agreement and therefore the shares could not be voted.  Accordingly, plaintiffs’ consent failed because they did not obtain a majority vote.

A question also arose below about the validity of plaintiffs’ consent because they failed to obtain an omnibus proxy from the record holder (CEDE & Co.) in connection with the votes they obtained from the banks and brokers who had proxies for the beneficial holders.  The Court below held, and the Supreme Court affirmed, that the vote of the record holder is required to act by written consent.  The Court below went on to hold that the banks and brokers were also record holders and therefore the lack of an omnibus proxy was not fatal.  While finding it unnecessary to reach this issue, the Supreme Court declared that this holding of the Court below was obiter dictum and should not be followed given that the Court below redefined stock ledger in a way that should be left to the legislature.

A team of Ashby & Geddes attorneys from the Corporate Litigation and Counseling practice group, including Stephen E. Jenkins, Catherine A. Gaul and Andrew D. Cordo, represented the defendant preferred stockholder.  They worked in close conjunction with co-counsel, Steven Talley of the Denver office of Gibson, Dunn & Crutcher, who originated the legal theory that won on appeal.  You may read a copy of the Delaware Supreme Court’s opinion, Crown EMAK Partners, LLC v. Kurz, 992 A.2d 377 (Del. 2010), here.