In an important decision for proxy and takeover contests, the Delaware Supreme Court last week addressed significant questions of corporate “vote-buying” and stock ownership. Crown Emak Partners v. Kurz, No. 64, 2010 (April 21, 2010). (See this post.)
In the course of a corporate control contest, the incumbent directors amended the company’s by-laws to reduce the size of the board, thereby mooting the insurgents’ attempt to elect new directors. During the same period, the insurgents purchased from a former corporate employee the right to vote just enough shares to secure a bare majority, as well as the future economic interest in those shares. Because the former employee was contractually prohibited from selling his shares until 2011, however, the parties left “bare legal title” in his hands. After the inspector of elections invalidated pro-insurgent votes cast by holders of shares held in street name (for want of an appropriate “universal proxy”), the insurgents sued, challenging the validity of the by-law and the invalidation of their votes. The incumbents, in turn, alleged that the share purchase amounted to impermissible vote-buying. The Court of Chancery ruled for the insurgents, holding that street name holders – the banks and brokers who appear on the “Cede breakdown” – are “stockholders of record” for purposes of deciding who has the right to vote or act by written consent under Delaware law. Chancery also ruled that the share transaction was not impermissible vote-buying and that the by-law amendment was impermissible under Delaware law.