Supreme Court Affirms Oral Resignation of Director

Biolase, Inc. v. Oracle Partners, L.P., Del. Supr., No. 270, 2014 (Del. Ch. June 12, 2014).

Issue Addressed:  Whether a director may resign by an oral statement alone, pursuant to DGCL Section 141(b).  Answer:  Yes.

Highlights
This decision is the result of an expedited appeal based on an expedited Chancery proceeding to determine the valid composition of the board of directors of Biolase, Inc. pursuant to 8 Del. C. § 225.

The key background facts include a board meeting that was held by telephone during which, as planned previously, two of the directors resigned orally.  Later that same day, the CEO was surprised to learn that the two new directors who took the place of the resigning directors were aligned with a faction that sought his ouster, and at that point the CEO began to question the validity of the oral resignation.

There were a few “problem facts” for the challengers of the oral resignation. For example, a Form 8-K that was filed with the SEC  stated, in essence, that the oral resignations were not effective–but one problem with that Form 8-K was that a press release was attached which stated, inconsistently, that the two board members had resigned. The Court of Chancery determined that one of the two oral resignations was effective.

Key Issues Addressed:  (1)  Whether DGCL Section 141(b) is a permissive statute that does not require a director to resign in writing; and (2) Whether the Court of Chancery abused its discretion by denying Oracle an award of attorneys’ fees even though Oracle never made the argument seeking the fee award in its trial briefs or post-trial arguments.

Highlights:

The court upheld the reasoning of the trial court even though the standard of review for legal determinations, including the interpretation of a statute, is de novo.

The statutory provision in Section 141(b) that “any director may resign at any time upon notice given in writing or by electronic transmission to the corporation,” was interpreted as permissive and not requiring written notification.  The court cited to a long list of prior decisions in which oral resignations were recognized.  See footnote 8.

One of the unsuccessful arguments was that because two directors were appointed to fill one vacancy, there was no logical way to determine which of the two directors the board intended to fill the one vacancy.  However, the Delaware Supreme Court determined that the trial court used an orderly and deductive reasoning process to determine that, based on the draft minutes of the board meeting, the vacancy was filled in the order that the names appeared in the minutes.

Lastly, regarding the issue of attorneys’ fees, the Delaware Supreme Court determined that the claim for attorneys’ fees needed to be included in pre-trial briefs and in post-trial arguments. Because the argument for attorneys’ fees was not included in the pre-trial or post-trial briefs, the argument was waived.  See footnote 16.  The court also rejected the supplemental argument that the issue of awarding attorneys’ fees should be done in piecemeal fashion and only addressed after the entry of a final judgment.

It remains noteworthy to mention that this expedited appeal, including this final written opinion from the Supreme Court, all transpired within a few short weeks.

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The Chancery decision appealed from was highlighted on these pages here.