Hockessin Community Center, Inc. v. Swift, C.A. No. 7789-VCL (Del. Ch. Oct. 5, 2012).
This decision is most useful for its treatment of nonstock corporations and de facto directors, although it also features enlightening historical anecdotes about important civil rights struggles in Delaware during the early 1950s.
Delaware does not have a separate statute for nonstock corporations. Rather, the DGCL applies to nonstock provisions via Section 114, a “translator provision setting forth which provisions of the DGCL apply to all nonstock corporations and which of those provisions apply to nonprofit nonstock corporations.” Slip op. at 32. A nonstock corporation is defined in Section 114(d)(4) as any corporation not authorized to issue capital stock. A “non-profit nonstock corporation is a nonstock corporation that does not have membership interests.” A “charitable nonstock corporation is any nonprofit nonstock corporation that is exempt from taxation under Section 501(c)(3) of the U.S. Internal Revenue Code.” See DGCL Section 114(d)(1).
A “de facto director” is a title that can apply to a director who was purportedly put in place without the necessary corporate formalities being followed. The status of such a director does not “evaporate”, and has been defined as:
“… one who is in possession of and exercising the powers of that office under claim and color of an election, although he is not a director de jure and may be removed by proper proceedings. Where a director assumes office pursuant to an irregular election in violation of the provisions of the corporate charter, he achieves only de facto status which may be successfully attacked by stockholders.”
Slip op. at 40 (internal citations omitted). This opinion also is noteworthy for its scholarly analysis of the legal issues involved in a contest pursuant to Section 225 for control of a nonprofit board, and a reasoned explanation to support its conclusion regarding which board members were validly seated after a tumultuous series of events marked by failure to follow proper corporate procedures and dysfunctional relationships.