Seth Barrett Tillman of Maynooth University Department of Law was recently cited by Vice Chancellor Parsons of the Delaware Court of Chancery.
In OptimisCorp v Waite (26 August 2015), a decision of the Delaware Court of Chancery, the court was confronted by competing claims of rival factions of corporate officers and directors. On October 20, 2012, the director-defendants removed the chief executive officer, the largest single stockholder, at a special meeting of the board. These director-defendants sought to ensure the CEO’s removal and to prevent his return by amending the stockholders agreement. In carrying out these plans, the director-defendants took actions inconsistent with best corporate governance practices, including violating their duty of candour. The director-defendants’ actions were contested in a collateral Section 225 action, which is limited to the appointed and removal of corporate officers and directors. Here, the 225 action was settled in March 2013. As part of the settlement of that action, the former CEO was reinstated and the parties determined that the amendment to the stockholders agreement was "void".
The reinstated CEO sued the director-defendants for breach of contract, i.e., for violating the stockholders agreement, including his wrongful ouster. The Court flatly rejected the CEO’s contract claim. The court acknowledged that the parties to the settlement determined that the amendment to the stockholders agreement was void. If the amendment was valid, then the ouster was legal. If the amendment was not valid, then the ouster was not legal, and the ouster breached the stockholders agreement. Notwithstanding the fact that the parties determined in 2013 that the amendment was void, the court held that the relevant inquiry was whether the amendment was void at the time of the alleged breach. Here, the defendant-directors actions violated no statutory or legal rule. Instead, the defendant-directors actions violated their duty of candour: an equitable, not a legal, principle. For that reason, the amendment was only voidable, not void, and therefore, in October 2012 enforceable. In short, there was no breach of contract at the time of the director-defendants’ contested conduct, which at most violated an equitable principle, but not a legal rule. In reaching its conclusion, the Court relied on a 2008 article in The Business Lawyer which was co-authored by Seth Barrett Tillman.
See OptimisCorp v. Waite, Civ. A. No. 8773-VCP, slip op. at 191 n.589, 2015 WL 5086342, at *74 n.589 (Del. Ch., Aug. 26, 2015).
Tillman’s article is also available online.
Seth lectures in the Law of Equity and Trusts and in US Law at Maynooth University Department of Law.