Delaware Court of Chancery orders stockholder meeting under Section 211

Steven D. Goldberg, Esq. Wilmington, DE
sgoldberg@stevendgoldberg.com
http://www.stevendgoldberg.com
Contact me if you need assistance in forming/organizing a Delaware business entity or any matter of Delaware law. Delaware Forms and Publications are available at http://www.delawarellclaw.com

The LLC Act does not require that the company hold meetings of its members. In the context of an LLC the need and requirements for meetings of member and or its governing body are determined under the terms of its company or operating agreement. I have commented in earlier blogs that it is my personal belief that an LLC should have an annual as well as periodic meetings of its members and governing body and that appropriate minutes be prepared and preserved for such meetings.

Under the Delaware General Corporation Law (DGCL), Section 211(c) (Meetings of stockholders), provides in part that “… if no date has been designated, for a period of 13 months after the last to occur of the organization of the corporation, its last annual meeting or the last action by written consent to elect directors in lieu of meeting, the Court of Chancery may summarily order a meeting to be held upon the application of any stockholder or director.”

In Section 211 the DGCL uses the term “stockholder” to define the person or persons who have the right to seek an order calling for a meeting, while Section 220 (Inspection of books and records) defines “stockholder in (a)(2) to mean “… a holder of record of stock in a stock corporation, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person…” In the context of the DGCL when stock is held in the name of a “nominee” that includes a person who holds stock in “street name”, that is, the stock is held in a brokerage or similar account where the name of the beneficial owner is not recorded on the corporation’s stock transfer ledger.

In Opportunity Partners, L.P. v. Transtech Service Partners Inc., CA 4340-VCP, Decided April 14,2009, Opportunity_Partners_v_Transtech_Opinion the Delaware Court of Chancery was faced with the a claim that the Defendant had not held a stockholder meeting for more than 13 months. The company defended on the basis that (1) the Plaintiff was not the record owner of any shares and therefore not a stockholder and (2) that the Plaintiff had “questionable goals” to call a meeting.

The Court considered the definitional issues of 211 and 220 and stated that while the differences between the two sections present “intriguing questions” the Court concluded that it need not decide the issue as it found that by the time of the hearing the Plaintiff had successfully transferred stock from street name to its name of record. (The pleadings were amended with the Court’s consent).

The Court found no basis for the claim of “questionable goals” which would outweigh the rights of stockholders to have a meeting called.

In the court’s analysis of 211 the Court observed that it does not mandate an order for a meeting. However it observed that “the Delaware Supreme Court has recognized that a stockholder’s right to have a meeting to elect directors is ‘virtually absolute’. Moreover, the Supreme Court has held that ‘[g]iven the importance of an annual meeting of stockholders in the administration of corporate affairs, ‘prompt’ relief is essential under Section 211.’ Nonetheless, a stockholder’s prima facie case can be defeated by an adequate affirmative defense.” [Citations omitted]. The Court found that the defenses asserted by the Company were insufficient overcome the right of the stockholders to have a prompt meeting.

After addressing the complexities of the proxy system and the mechanics of calling an election as well as other matters affecting this Company, the Court ordered a meeting within 60 days and ordered that the record date be prior to a meeting of stockholders previously scheduled to approve a business combination so as to avoid the incumbent directors having an advantage in an annual meeting.

I have an active Delaware business practice as well as a practice in Delaware’s State and Federal courts. If you or your client have a business matter or a matter which you wish to litigate in Delaware or has a matter pending in Delaware, we would appreciate the opportunity to consult with you regarding our representation. Please remember that we do not accept representation without a written engagement letter.