Category Archives: Corporate Law

Chancery Court Issues Discretionary Remedy to Dole Shareholders in Fraud

The Delaware Court of Chancery issued a damages award of $148 million to Dole Food Company shareholders after CEO David Murdock and President and COO C. Michael Carter intentionally and fraudulently misrepresented company performance in an attempt to undervalue Dole stock.  In a blog post written for the Delaware Journal of Corporate Law, DJCL staff member Brandon Harper explains how Vice Chancellor Laster determined that shareholders were entitled to what he declared a “fairer price.”

Read more at http://www.djcl.org/blog.

Peeling Back the Business Judgment Rule: Corporate Responsibility After Chiquita

By Matthew Goeller
Articles Editor, Delaware Journal of Corporate Law

Enacted in the first Judiciary Act of 1798, the Alien Tort Statute (“ATS”) provides federal jurisdiction to aliens alleging violations of international law. What remained a largely unused statute, the ATS reemerged in 1980 as a creative tool to hold violators of international law liable in U.S. courts, even when those violations occurred abroad or the actors were foreign citizens. As ATS jurisprudence unfolded over the last thirty years, the statute’s jurisdictional grant extended first to foreign state actors, then to private citizens, and eventually even to corporations. The Supreme Court’s decision in Kiobel v. Royal Dutch Petroleum Co., however, seemed to narrow the scope to which the ATS applies to corporations. Despite the Supreme Court’s holding, many circuit courts and commentators maintained that ATS liability is nonetheless still possible for corporations.

In Cardona v. Chiquita, Colombian citizens brought suit against Chiquita under the ATS, claiming that Chiquita’s support of known terrorist groups funded a brutal campaign of torture, drug trafficking, and imprisonment. The Eleventh Circuit’s holding that the ATS does not reach corporations highlights the current uncertainty as to whether the statute applies to corporations.

Adding to this uncertainty is an emerging concern that participation in international law violations might perhaps implicate a breach of fiduciary duties. Corporate directors, whose business decisions directly or indirectly involve the corporation with violators of international law, might ordinarily seek the protection of the deferential business judgment rule. However, more nuanced interpretations of fiduciary duties and more probative efforts of understanding the precise nature of those business decisions might well evince a breach of fiduciary duty. This analysis, coupled with the already present uncertainty as to the applicability of the ATS, should encourage directors of corporations to adopt more stringent governance policies that provide structural mechanisms to ensure compliance with internationally recognized legal norms.

Download the full article Peeling Back the Business Judgment Rule – Corporate Responsibility After Chiquita.

Suggested Citation: Matthew B. Goeller, Peeling Back the Business Judgment Rule: Corporate Responsibility After Chiquita, INST. DEL. CORP. & BUS. L. (May 28, 2015), http://blogs.law.widener.edu/delcorp/#sthash.7Nk3jxjd.dpbs

Evidence Relating to the Effect of Prescribing Majority Voting in the Election of Directors as the Default Voting Standard

Prof. Lawrence A. Hamermesh
Ruby R. Vale Professor of Corporate and Business Law
Widener University School of Law, Wilmington, Delaware

[Professor Hamermesh is a member of the Delaware State Bar Association’s Council of the Corporation Law Section (the “Delaware Council”). Nevertheless, nothing stated here represents the views of that group.]

On August 11, 2011, the Council of Institutional Investors (“CII”) requested that the Delaware Council promote the revision of the Delaware General Corporation Law (“DGCL”) to alter the default rule governing the required vote in the election of directors. Specifically, CII asks that the default rule – currently that a plurality vote is sufficient to elect directors – be amended to require some form of majority vote, at least in the absence of a contested election. (CII’s letter was published on its web site more or less concurrently with its submission to the Delaware Council, and is available here).

In its letter, CII asserts that “many corporations incorporated in Delaware adopt the plurality voting standard by default.” This is an empirically testable assertion: to “adopt the plurality voting standard by default,” a company’s bylaws would have to be silent on the question of the required vote to elect directors. If the bylaws prescribed a voting standard (either the plurality standard or some form of majority vote standard), the default rule under Section 216 of the DGCL would be displaced and would not control. The bylaws, and not the statutory default provision, would prescribe the voting standard.

It therefore seemed appropriate to evaluate whether and to what extent Delaware public company bylaws actually do or do not prescribe a voting standard for electing directors. Because of CII’s focus on smaller public companies that have not adopted majority voting bylaws, I (with the assistance of George Codding, Widener Law ‘2012) examined a sample of 150 Delaware companies in the Russell 2000 small cap index. 142 of the 150 companies in that sample (95%) have bylaws prescribing a voting standard.

This result comes with one caveat. 21 of the 150 sampled companies (14%) have a bylaw provision to the effect that a majority in interest of the combined voting power of the issued and outstanding shares of stock entitled to vote represented at the meeting shall decide any question or matter brought before such meeting. Because of their typical comprehensiveness (governing votes on “all matters” or “all actions” subject to stockholder vote), I would be inclined to interpret such a provision as defining a general voting standard applicable in all voting situations, including the election of directors, absent some specific provision requiring a different standard for the election of directors. There are arguments to the contrary, however, which, if successful, would leave the statutory default standard to govern director elections, and would result in an amendment to that standard having a somewhat greater formal impact.

On balance, the information generated from our review indicates that, contrary to CII’s assertion, very few Delaware public companies – and certainly not “many” – “adopt the plurality voting standard by default.” Thus, in the large majority of Delaware companies, a change in the default rule governing the required vote to elect directors would have no formal effect at all. Barring a statutory amendment mandating some form of majority vote standard (rather than merely prescribing that standard as a default), any change in the voting standard in most of the sampled companies would have to arise through amendments to the governing bylaw provisions. Such amendments can be accomplished by unilateral stockholder vote under the DGCL, and adoption of a bylaw prescribing a majority vote standard precludes subsequent amendment by the directors (DGCL Section 216).

New Vice Chancellor Confirmed

On September 20th, J. Travis Laster was confirmed by the Delaware Senate to become the newest Vice Chancellor on the Delaware Court of Chancery.  October 9 is the expected date for his investiture and swearing in ceremony.  Laster, 39, will fill the seat vacated by retired Vice Chancellor Stephen P. Lamb.

For coverage of the news by Bloomberg and Delaware News Journal:
http://www.bloomberg.com/apps/news?pid=20601127&sid=a1uOdqjI8PvM
http://www.delawareonline.com/article/20090923/NEWS02/909230356