Kistefos AS v. Trico Marine Services, Inc., Del. Ch., No. 4497-CC (April 14, 2009), read letter opinion here.
Kevin Brady, a highly respected Delaware litigator, provides us with the benefit of his review of this case as follows.
This Chancery Court decision involves an action by a shareholder seeking a declaration that the company had improperly blocked a shareholder vote on a proposed bylaw. Chancellor Chandler on April 14, 2009, heard oral argument and issued a five-page decision the same day denying a motion to expedite the case. While that in and of itself is unremarkable given the pace at which the Court of Chancery operates, it is what Chancellor Chandler did with respect to underlying case that is the interesting part of this decision.
The plaintiff, Kistefos AS (“Kistefos”), a substantial minority stockholder of Trico Marine Services, Inc. (“Trico”), filed a complaint against Trico seeking a declaration that Trico improperly rejected a proposed bylaw on grounds that if adopted, the proposed bylaw would be inconsistent with Delaware law and Trico’s certificate of incorporation. In his April 14 decision, Chancellor Chandler created a process whereby the shareholder was able to get the relief it was seeking and at the same time the company was able to preserve its legal challenge with respect to the proposed bylaw for a later time.
Background – Trico Rejects Shareholder Proposals
In anticipation of Trico’s 2009 annual meeting, Kistefos, Trico’s largest stockholder, on March 14, 2009, sent several proposals to Trico’s board to be placed before Trico’s stockholders for a vote at Trico’s annual meeting. Included in Kistefos’ proposals was one which, according to Kistefos, was designed “to give ‘teeth’ to [Trico’s] otherwise illusory majority voting requirement.” This proposal provided that an incumbent director who “fails to receive the number of votes required to elect directors at any meeting of stockholders at which such person is to be elected” shall be ineligible to continue to serve and his or her term will expire immediately, creating a vacancy on the board. Trico’s bylaws provided that directors were elected by a majority vote of stockholders, however, an incumbent director who received only a plurality of votes could continue to serve as a “holdover” director until a successor had been elected or until the director’s resignation or removal.
On March 25, 2009, Trico rejected Kistefos’ proposed bylaw on the grounds that it would be invalid if adopted because it was inconsistent with the provisions of Trico’s certificate of incorporation and §§ 141(b) and (k) of the Delaware General Corporation Law. Trico also said that it would disregard that proposal if Kistefos presented it for stockholder action at the 2009 annual meeting.
On April 8, 2009, plaintiff filed suit challenging Trico’s decision and seeking an order that would require Trico to place Kistefos’ proposed bylaw before the stockholders for a vote. Kistefos also moved for expedited treatment because Trico’s annual meeting could take place as early as late May.
Chancellor Denies Motion to Expedite; Preserves Dispute Until Later
During the teleconference with the Court on April 14, 2009 with respect to Kistefos’ motion to expedite, Kistefos represented that expedition would not be necessary if the stockholders were permitted to vote on Kistefos’ proposed bylaw at the 2009 annual meeting. In response, Trico offered to collect and preserve the proxies submitted for and against Kistefos’ proposal so that it could later be determined if the proposal received the required vote.
In denying the motion to expedite, Chancellor Chandler preserved the defendants legal challenge with respect to the proposed bylaw and at the same time he permitted the bylaw proposed by Kistefos to be placed on the ballot for consideration and stockholder vote at the 2009 annual meeting “in the same manner as other proposals are presented to the stockholders for a vote.” In reaching this decision, Chancellor Chandler found that there was no need to expedite the proceedings because Kistefos no longer faced any irreparable injury. Kistefos got what it wanted in terms of being able to present the proposed bylaw to the stockholders for a vote at the meeting. Moreover, Chancellor Chandler noted that if Kistefos prevailed on its proposed bylaw, the issue with respect to defendants’ legal challenge would then be ripe for judicial review.