Canmore Consultants Ltd. v. L.O.M. Medical International Inc., C.A. No. 8645-VCG (Del. Ch. Sept. 19, 2013).

This is the first court decision to address the application of DGCL § 223(c).  This statute allows stockholders in certain circumstances to petition (but not to compel) the Court of Chancery to order a special meeting of stockholders to fill vacancies on the corporate board through the exercise of a stockholders’ franchise, rather than through appointment by the remaining directors.  Although the plaintiffs in this case had standing, the court determined that it has the discretion to grant a petition under § 223(c) and under the facts of this case the equities did not support a special meeting of the stockholders and, therefore, the directors appointed by the remaining elected directors would continue in office until the next annual meeting.

The court also addressed the issue of first impression to conclude that the plaintiff stockholders have the burden of persuasion under § 223(c).  See related Chancery decision in Gentili v. L.O.M. Medical Int., Inc., 2012 WL 3552685 at *3 (Del. Ch. Aug. 17, 2012) (Section 225 action to challenge the validity of incumbent directorships elected at an annual meeting).

The court explained that although, historically, newly elected directorships were filled by stockholder vote, the DGCL has been modified to allowed directors to fill newly created directorships and vacancies between yearly meetings as a matter of efficiency.  The purpose of § 223(c) is to limit the grant of director authority under § 223(a) by allowing for court intervention to prevent a minority of elected directors from appointing a majority on the board.

Thus, § 223(c) provides only a limited exception to directorial authority under § 223(a) and provides discretion to the court whether to allow that option.