November 16, 2022

Proxy Contests: Del. Chancery Says Insurgents Provided a “Substantial Benefit”

Earlier this year, I blogged about Totta v. CCSB Financial, (Del. Ch.; 6/22), in which Chancellor McCormick held, among other things, that a charter provision prohibiting a stockholder from exercising more than 10% of its voting power interfered with stockholders’ exercise of the franchise. In a subsequent letter decision, Chancellor McCormick concluded that the insurgent stockholders conveyed a substantial benefit upon the company and granted their request for attorneys’ fees.

The company argued that the insurgents gained an exclusively personal benefit, because only their votes were positively impacted by the Court’s interpretation of the antitakeover provision in the charter document, and because their actions advanced the interests of their affiliate in obtaining control of the company.  Chancellor McCormick disagreed:

I do not view the benefit conferred in this case so narrowly. While in a strict sense the Post-Trial Opinion only affected Plaintiffs’ votes, the judgment fortifies the Company’s stockholder franchise generally. By bringing this litigation, Plaintiffs vindicated not only their own votes, but also the majority vote of the unaffiliated stockholders who properly elected the insurgent nominees.

The result obtained by this litigation prevents future stockholders from being similarly harmed by an erroneous application of the Voting Limitation. Plaintiffs’ success in this case confers a substantial benefit on CCSB by retroactively correcting the incumbent board’s interpretation of the Voting Limitation and, in effect, proactively setting the interpretation for future elections. The corporation is better off for a rectified election process.

The Chancellor ultimately concluded that the substantial benefits conferred on the company justified the insurgents request for reimbursement of approximately $385,000 in fees and expenses.

John Jenkins