On January 17, 2024, the Delaware Supreme Court issued a significant decision affirming that the Delaware General Corporation Law (the DGCL) does not require companies with multiple classes of common stock to obtain separate class votes to amend their certificates of incorporation to provide for officer exculpation.1
The decision stems from charter amendments adopted by the defendant companies—each of which had at least one class of voting common stock and a class of non-voting common stock outstanding—to provide officers protection from monetary liability for certain claims for breaches of the duty of care, without obtaining a class vote of the non-voting common stock. The plaintiff stockholders filed suit in the Delaware Court of Chancery, arguing that a separate class vote of the non-voting common stock was required under Section 242(b)(2) of the DGCL because the amendments adversely affected the “powers, preferences, or special rights” of the non-voting stock. The Delaware Court of Chancery rejected the plaintiffs’ argument, granting summary judgment for the companies.2
On appeal, in a unanimous opinion authored by Chief Justice Collins J. Seitz, Jr., the Delaware Supreme Court affirmed. The court rejected the plaintiffs’ broad reading of “powers” in Section 242(b)(2) to include the ability to sue, which the court said would require it to “pluck a single word from the statute, apply a generic dictionary definition to that word, and put on blinders to the rest of the words in the statute and the statute’s place in the DGCL.” The court instead looked to the DGCL as a whole, reasoning that Sections 151(a) and 102(a)(4) of the DGCL using parallel language “work together” to limit the scope of “powers, preferences, or special rights” of a class in Section 242(b)(2) to “those authorized by Section 151(a) and expressed in the charter under Sections 151(a) and 102(a)(4).” The court also looked to legislative history and seminal Delaware precedent interpreting the statute in accord with the companies’ reading in a forceful affirmance of the importance of stare decisis.
The Supreme Court’s decision provides helpful certainty to multi-class companies that are considering adopting officer exculpation. Beyond the charter amendment context, the court’s opinion provides valuable guidance for how Delaware courts approach statutory interpretation and reaffirms the Supreme Court’s commitment to established precedent.
[1] In re Fox Corp./Snap Inc. Section 242 Litig., Nos. 120 & 121, 2023 (Del. Jan. 17, 2024).
[2] Wilson Sonsini’s prior client alert on the Court of Chancery decision is available here: https://www.wsgr.com/en/insights/delaware-court-of-chancery-issues-important-ruling-for-multi-class-companies-addressing-class-votes.html.
