Page 29 - Delaware Lawyer - Winter 2020

FEATURE
Sections continued from page 23 ample, a stockholder consent contained a
pre-printed date.15 The statutes have been roundly viewed as having achieved their objective, and are consistent with Dela- ware’s continued effort to be the best cor- porate home in America.
NOTES
1. 8 Del. C. §§ 204 & 205.
2. 79 Del. Laws ch. 72 (2013).
3. 581 A.2d 1127 (Del. 1990). The Court
of Chancery subsequently construed Waggoner and related cases as requiring strict compliance with corporate formalities in connection with changes to the corporation’s capital structure. See Blades v. Wisehart,
2010 WL 4638603 (Del. Ch. Nov. 17, 2010) (“Delaware law is clear that strict compliance with statutory requirements is expected when boards change the capital structure of the corporation. If our law was ever unclear on this point, the Supreme Court’s related decisions in Waggoner v. Laster and STAAR Surgical Company v. Waggoner made it
plain that law trumps equity in this area of corporate decisionmaking.”).
4. For a discussion of the effect of a declaration that a corporate act is “void,” see C. Stephen Bigler & Seth Barrett Tillman, Void or Voidable? — Curing Defects in Stock Issuances Under Delaware Law, 63 BUS. LAW. 1109 (2008).
5. The synopsis to the legislation enacting Sections 204 and 205 stated: “[Section] 204 is intended to overturn the holdings in case law, such as STAAR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del. 1991) and Blades v. Wisehart, 2010 WL 4638603 (Del. Ch. Nov. 17, 2010), that corporate acts or transactions and stock found to be ‘void’ due to a failure to comply with the applicable provisions of the General Corporation Law or the corporation’s organizational documents may not be ratified or otherwise validated on equitable grounds.” H.B. 127, 147th Gen. Assemb., Reg. Sess. (Del. 2013).
6. 8 Del. C. § 204(e).
7. In one of the earliest opinions construing Section 205, In re Numoda Corp. S’holders Litig., 2015 WL 402265, at *7 (Del. Ch. Jan.
30, 2015), the Court, after enumerating the factors to consider in determining whether to validate stock or other corporate acts, stated: “The legislation thus empowers the Court to grant an equitable remedy for corporate acts that once would have been void at law and unreachable by equity.”
8. See, e.g., Boris v. Schaheen, 2013 WL 6331287 (Del. Ch. Dec. 2, 2013); In re Native American Energy Group, Inc., 2011 WL 1900142, at *5-6 (Del. Ch. May 19, 2011); Blades, 2010 WL 4638603.
9. 2010 WL 4638603, at *3.
10. 2018 WL 3954733 (Del. Ch. Aug. 17, 2018).
11. The Court stated that “Defendants
are requesting that the court restore the Company and its stockholders to the positions they believed they occupied at all times”
prior to the defective acts and that there
was “no inequitable motivation underlying the Company’s failure to implement and document” those acts properly. Id. at
*21. “To the contrary,” the Court noted, “defendants had nothing to gain but much
to lose by the failures,” while the plaintiffs were seeking “an inequitable windfall for technical defects” of which none of the principal defendants were aware until after the company had been acquired in a merger. Id.
12. 2018 WL 3388398 (Del. Ch. July 11, 2018).
13. Id. at *9.
14. 2017 WL 2439074 (Del. Ch. June 6, 2017). The View Court stated: “Section 204 makes clear that the defective corporate acts that a corporation purports to ratify must
be within the corporation’s power ‘at the
time such act was purportedly taken.’ As determined by the arbitrator, at the time the various corporate acts sought to be ratified
by View through the 2016 Ratifications
were purportedly taken, Nguyen enjoyed
class voting protections as the holder of the majority of the common stock as well as the right to appoint one of the members of the Board of Directors pursuant to the Voting Agreement. The 2016 Ratifications must
be viewed in light of that operative reality. Through this lens, it is clear that, at the time View purported to proceed with the Series B Financing, it did so notwithstanding that the majority common stockholder had deliberately
withheld his consent for the transaction — consent that was required for the transaction to be valid as a matter of law. Therefore,
at the time the defective corporate acts at issue here were taken, the Company did not have the power to take these acts because its majority common stockholder had declined to approve them.” Id. at *9. In 2018, Section 204 was amended to clarify the application of the statute in light of the Court’s holding in View. See John Mark Zeberkiewicz
& Stephanie Norman, 2018 Proposed Amendments to the General Corporation Law of the State of Delaware, 32 INSIGHTS 4, at 4 (April 2018) (“The proposed amendments to Section 204(h)(1) would overturn any implication from the View opinion that an act or transaction may not be within the power of a corporation solely on the basis that it
was not approved in accordance with the provisions of the DGCL or the corporation’s certificate of incorporation or bylaws. Indeed, defective corporate acts require ratification because originally they were not so approved. The amendments attempt to clarify that the failure to approve an act in accordance with the DGCL or the certificate of incorporation or bylaws may not, of itself, serve as a basis for excluding the act from the scope of the statute.”).
15. The requirement that stockholder consents be individually dated — and the concern as to whether a consent was invalid on the basis that it was not individually dated — has been addressed through an amendment to Section 228 of the DGCL. See John Mark Zeberkiewicz & Brigitte Fresco, 2017 Proposed Amendments to the General Corporation
Law of the State of Delaware, 31 INSIGHTS 4, at 3 (April 2017) (“Section 228 of the DGCL, which deals with stockholder action by consent in lieu of a meeting, is being amended to dispense with the requirement that each consent bear the date of signature
of the stockholder executing the consent.
The amendment will address the concerns stemming from H-M Wexford LLC v. Encorp, Inc., where the Court of Chancery denied
the defendants’ motion to dismiss plaintiff’s challenges to the validity of stockholder consents, which challenges were based on
the fact that the consents had a ‘preprinted’ date but were not individually dated by the stockholders providing them.”).
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