In Martin v. Med-Dev Corp., C.A. No. 10525-VCP (Del. Ch. Oct. 27, 2015), the Court of Chancery invalidated the resignation of a director who was tricked into resigning from his board position, and the Court reinstated him as chairman. The Court’s opinion is also notable for its discussion of what steps must be taken for a director’s resignation to be effective.
The ousted director instituted a summary proceeding pursuant to DGCL Section 225(a), seeking to revoke his resignation and obtain a declaration reinstating him as Chairman. Although he had agreed to resign, with conditions, from the board if two stockholders of his choice were appointed to the board, and had documents to that effect drafted, the board secretly changed the terms of his resignation letter. The revised resignation letter made his resignation unconditional, and the changes were never communicated to the director before he signed it. The board instead led the director to believe that the terms he had agreed to remained in force.
The Court rejected the director’s contract based arguments, and instead concluded that the resignation was invalid because it was obtained through trickery or misrepresentation. Finding the transaction to be voidable because it was entered into in reliance on a material misrepresentation, the Court ordered the director to be reinstated to his position as chairman.