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applying doctrine to corporate charter
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Civil Action No. 12731
Date Submitted: November 16, 1992
Date Decided: November 20, 1992
Crag B. Smith, Esquire, of SMITH, KATZENSTEIN FURLOW, Wilmington, Delaware, Attorneys for Plaintiffs.
Anthony W. Clark and Matthew F. Boyer, Esquires, of SKADDEN, ARPS, SLATE, MEAGHER FLOM, Wilmington, Delaware, Attorneys for Defendant FLS Acquisition Corp.
Kenneth J. Nachbar, Esquire, of MORRIS, NICHOLS, ARSHT TUNNELL, Wilmington, Delaware: Mitchell A. Karlan, Esquire, of GIBSON, DUNN CRUTCHER, New York, New York, Attorneys for Defendant FLS Holdings Inc.
Stephen M. Jenkins, Esquire, of ASHBY GEDDES, Wilmington, Delaware, Attorneys for the Individual Defendants.
This action was commenced on September 25, 1992, when certain preferred stockholders of FLS Holdings Inc. ("FLS" or the "Corporation") challenged a proposed merger of FLS with a wholly owned subsidiary of Kyoei Steel Ltd. ("Kyoei"), FLS Acquisition Corp. ("FLSAC"). The plaintiffs beneficially won shares of FLS Series A Cumulative Exchangeable Preferred Stock (The "Series A Preferred Stock"). The named defendants are FLS its directors, FLSAC, and Kyoei. Should the merger be approved, all shares of the Series A Preferred Stock will be "cashed out" at $18.128 per share. The plaintiffs seek, among other things, a declaratory judgment that the holders of the Series A Preferred Stock are entitles to vote separately as a class on the merger.
All of the named defendants except for Kyoei have entered an appearance. Kyoei contends that it has not been properly served with process. Accordingly, references to the 'defendants" in the Opinion shall mean the defendants other than Kyoei.
Because the merger was scheduled to close in late November 1992, the plaintiffs moved for an order expediting the proceedings. They simultaneously moved for the entry of a declaratory judgment in their favor as to Count III of the complain, which asserts the class-vote claim. The parties submitted briefs on the class-vote issue, and oral argument was held on November 13, 1992. Because at the hearing certain contentions were raised for the first time, the plaintiffs (with leave of Court) filed a supplemental memorandum on November 16, 1992. This is the decision of the Court after final hearing on the plaintiffs' motion for entry of declaratory judgment.
I.
The critical facts are undisputed. FLS is a Delaware corporation that holds the entire equity interest of Florida Steel Corporation. Three classes of FLS stock are currently issued and outstanding: 438,987 shares of Class A Common Stock; 61,013 shares of Class B Common Stock; and 1,600,806 shares of Series A Preferred stock. As earlier stated, the plaintiffs beneficially own shares of the series A Preferred Stock. Under FLS's Restated Certificate of Incorporation dated November 1, 1988 (the "Certificate"), the Class A Common Stock has the right to vote on all matters, while the Class B Common Stock and the Series A Preferred Stock have no voting rights, except as provided in the Certificate.
Approximately 27% of the Class A Common Stock is beneficially owned by members of FLS's board of directors, and approximately 46% is owned by Goldman Sachs Co, two partners of which are members of the FLS board. An additional 4% of the Class A Common Stock is owned by Citicorp Capital Investors, Ltd., an affiliate of Citicorp. One of FLS's directors is an officer of Citcorp, and Citicorp owns 100% of the FLS Class B Common Stock. Thus, members of the FLS board of directors, or their affiliates, own approximately 77% of the FLS Class A Common Stock and 100% of its Class B Common Stock.
On or about June 26, 1992, FLS entered into an Agreement and Plan of Merger with FLSAC and Kyoei (the "Merger Agreement"). The Merger Agreement provides that FLSAC will be merged into FLS, with FLS as the surviving corporation. All shares of Class A and Class B Common Stock will be converted into the right to received $18.845 per shared, and all shares of Series A Preferred Stock will be converted into the right to received $18.128 per shared. One condition to FLSAC's and Kyoei's obligation to consummate the merger is the acquisition by Florida Steel Corporation of 90% of its subordinated debentures pursuant to a tender offer. The parties to the merger Agreement have established November 30, 1992 as the date after which the parties will not be obligated to go forward if the mergers is not already consummated.
When the Merger Agreement was executed, FLS delivered to FLSAC the written consents to the Merger Agreement and the merger of the holders of all outstanding shares of Class A Common Stock. The Merger Agreement is not conditioned upon the approval of the holders of either the Class B Common Stock or the Series A Preferred Stock.
This motion rests upon the single contention that the holders of the Series A Preferred Stock are entitled to a separate class vote to approve or disapprove the merger as a matter of law. The provision which governs that question is Section B.1(H) of the Certificate, which pertinently provides in subparagraph (i) that the series A Preferred Stock "shall not be entitled to any voting rights except as hereinafter provided in this paragraph (H) or as otherwise provided by law." Thereafter, subparagraphs (ii) and (iii) of Paragraph (H) provide for voting rights in specified circumstances. Subparagraph (ii) entitles the Series A Preferred Stock to a class vote to elect two additional directors whenever dividends payable on the series A Preferred Stock are in arrears and unpaid in an amount equal to six full quarterly dividends, or if FLS has failed to discharge its mandatory redemption obligation for thirty days. The plaintiffs make no claim that subparagraph (ii) applies here. Rather, the plaintiffs rely exclusively upon subparagraph (iii), which provides:
So long as any shares of the Cumulative Exchangeable Preferred Stock are outstanding, the Corporation will not, without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Cumulative Exchangeable Preferred Stock, voting as a class, change, by amendment to the Certificate of Incorporation of the Corporation or otherwise, the terms and provisions of the Cumulative Exchangeable Preferred Stock so as to affect adversely the rights and preferences of the holders therof or authorize the issuance of any Senior Securities or Parity Securities or any securities exchangeable or convertible into any Senior Securities or Parity Securities.
Section B.1.(B) of the Certificate defines "Senior Securities" as "all equity securities of the Corporation to which the Cumulative Exchangeable Preferred Stock ranks junior (whether with respect to dividends or upon liquidation, dissolution, winding-up or otherwise)," and defines "Parity Securities" as "all equity securities of the Corporation with which the Cumulative Exchangeable Preferred Stock ranks on a parity (whether with respect to dividends or upon liquidation, dissolution, winding-up or otherwise)."
The plaintiffs argue that subparagraph (iii) mandates a class vote in connection with the FLS merger, because by converting the series A Preferred Stock into cash and thereby eliminating it, the merger will "change, by amendment to the Certificate . . . or otherwise, the terms and provisions of the . . . Preferred Stock, so as to affect adversely the rights and preferences of the holders thereof . . . ." (emphasis added). Although that provision does not mention mergers expressly, the plaintiffs argue that the phrase "or otherwise" must include mergers by necessary implication.
The defendants respond that the "or otherwise" language of Section B.1(H)(iii) cannot be read to include mergers, and that as a matter of law the plaintiffs' interpretation of that Section is misguided. The defendants' position, simply state, is that the term "or otherwise" is ambiguous and susceptible to an equally plausible but far narrower construction than that argued for by plaintiffs. The defendants argue that "or otherwise" means corporate actions that are the functional equivalent of an amendment of the Certificate.
When asked at oral argument what those functional equivalents might be, defendants' counsel responded that the term "or otherwise" could refer to the repeal of a provision in the Certificate; a reclassification of preferred stock; the filing of a restated certificate of incorporation: or the filing of a certificate, pursuant to 8 Del. C. § 151, that designates the rights, preferences, and the other attributes of a series of preferred stock. The first three of those examples require a formal certificate amendment for their accomplishment, and the last of them (filing a certificate of designation)could not validly be utilized to change the attributes of already-outstanding preferred stock. See 8 Del. C. § 151(g).
Thus, defendants conclude, whatever may be the intended meaning of the phrase "by amendment . . . or otherwise," it cannot include a merger. The strict rule of construction applied to stock preferences simply forbids so expansive a reading of "or otherwise". Moreover, the defendants urge, the Certificate, when considered in its entirety, clearly evidences an intention by its drafters not to confer a right to a class vote in a merger.
At oral argument, the defendants also named for the first time the contention that the plaintiffs lack standing to maintain the action because they failed to prove that owned shares of Series A Preferred Stock. Since the defendants did not raise the argument in their brief or other filings, or otherwise give fact notice to the plaintiffs that their standing would be challenged, the defendants are precluded from answering that position at this stage. Nonetheless, the Court permitted the plaintiff's to submit evidence that they beneficially own Series A Preferred Stock and have the right to direct the voting of those shares. The plaintiff's submitted such evidence, which the defendants do not contest. Thus, even if the defendants were procedurally entitled to challenge the plaintiff's standing, in these circumstances their attack also fails as a matter of substantive law. Flerlage v. KDI Corp., Del. Ch. C. A. No. 8007, Hartnett, V.C. Mem. Op. at 14 (Jan. 29, 1986.)
III. A
The question presented here — whether a certificate of incorporation entitles preferred stockholders to a class vote in the event of a merger — was recently addressed in Warner Communications Inc. v. Chris-Craft Indus., Del. Ch. 583 A.2d 962, aff'd, Del. Supr., 567 A.2d 419 (1989). That decision articulates the framework for the legal analysis employed here."[T]he existence and extent of special stock rights are determined by reference to the issuer's certificate of incorporation; such rights are essentially contractual in nature." Id. at 966. The Court will apply principles of contract interpretation, and read the Certificate in its entirety to arrive at the intended meaning of the words employed in any specific provision. Id. at 967. Because rights or preferences over common stock are in derogation of the common law, they "should be clearly expressed and not presumed." Id,; see also Waggoner v. Laster, Del. Supr. 581 A.2d 1127, 1134-35 (1990) (collecting cases); Rothschild Int'l Corp. v. Liggett Group Inc., Del. Supr., 474 A.2d 133, 136 (1984). Under this rules of strict construction, "any ambiguity must be resolved against granting the challenged preferences, rights or powers." Waggoner, 581 A.2d at 1135.
At common law, and in the absence of any statute or agreement to the contrary, all stock enjoys equal rights and privileges. Pennington v. Commonwealth Hotel Constr. Corp., Del. Supr. 155 A. 514, 520 (1931);Gaskill v. Gladys Belle Oil Co., Del. Ch., 146 A. 337, 338 (1929).
The requirement that stock voting rights be specified expressly and with clarity has also been codified in the Delaware General Corporation Law:
Any of the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of any such class or series of stock may be made dependent upon facts ascertainable outside the certificate of incorporation . . . provided that the manner in which such facts shall operate upon the voting powers, designations, preferences, rights and qualifications, limitations or restrictions . . . as clearly and expressly set forth in the certificate of incorporation . . .
Section B.1(H)(iii), like the disputed certificate provisions in Warner, entitles the Series A Preferred Stock to a class vote (requiring approval of at least two-thirds of the outstanding shares) if FLS changes that series of stock's terms and provisions so as to affect adversely the rights and preferences of its holders. In Warner the Chancellor found that the provision that conferred a class-vote right did not encompass merges, in part because the language of the Warner provision tracked § 242(b)(2) of the General Corporation Law, which mandates a class vote for classes of stock that would be adversely affected by amendments to a certificate of incorporation, but does not create a class voting right in the event of a merger. Warner, 583 A.2d at 969-70. This case, however, is arguably distinguishable from Warner, because Section B.1(H)(iii) contains a phrase not involved in Warner or found in § 242(b)(2), namely, "by amendment to the Certificate of Incorporation of the Corporation or otherwise."
Section 242(b)(2) pertinently provides:
The holders of the outstanding shares of a class shall be entitled to vote as a class upon a proposed amendment . . . if the amendment would . . . alter or change the powers, preferences, or special rights of the shares of stock of such class so as to affect them adversely.
The meaning of that phrase is the question before the Court. More precisely, the issue is whether that phrase clearly and expressly refers to mergers or (alternatively) a larger category of potential corporate actions that necessarily would include mergers. For the reasons discussed below, I conclude that it does not. First, neither the phrase "by amendment . . . or otherwise" nor Section B.1(H)(iii) mentions mergers at all. Second, the Certificate expressly confers a class-vote right in the vent of a merger upon the holders of a separate series of preferred stock (none of which is outstanding), the Series B Cumulative Redeemable Convertible Junior Preferred Stock (the "Junior Preferred Stock"). The absence of any such provision in Section B.1(H) evidences an intention of the drafters not to confer such protection upon the holders of Series A Preferred Stock. Third, no other provision in the Certificate, particularly Section B.1(H)(iv), supports the plaintiffs' broad interpretation of "or otherwise."
B
As a conceptual matter, "or otherwise" lends itself to two different meanings, one broader than the other. State ex rel. Waldman v. Miller-Wohl Co., Del. Supr., 28 A.2d 148, 152 (1942). The plaintiffs read the phrase broadly, as encompassing "all other corporate actions," which would include mergers. In that case, whatever term precedes the disputed phrase (here, "amendment to the Certificate of Incorporation of the Corporation") would be regarded as a specific example of that larger category. The defendants read the phrase narrowly to mean only those corporate actions that are identical or equivalent to an amendment of the Certificate, thereby excluding mergers. To say it differently, the phrase "or otherwise" if construed broadly, would mean "in any other way", and if construed narrowly, would mean "in like manner." Id. The former construction reflects the everyday meaning of the phrase; the latter reflects the rule of construction known as ejusdem generis, which is applied when "or otherwise" follows an enumeration of particulars.Id.
In this case only one particular — the words "amendment to the Certificate" — precedes "or otherwise." Does it then follow that "or otherwise" takes the expansive reading argued for by the plaintiffs? I think not. When construing a certificate of incorporation, the task of the Court is not simply one of mechanically assigning specific words their ordinary meaning. Rather, the Court must construe the Certificate in its entirety "`in order to determine the meaning intended to be given any portion of it.'" Warner, 583 A.2d at 967 (quoting Ellingwood v. Wolf's Head oil Ref. Co., Del. Supr., 38 A.2d 743, 747 (1994)). Should the context require that a phrase be interpreted other than in accordance with its commonly accepted meaning, the Court must give the words the meaning derived from construing the Certificate in its entirety. See Hibbert V. Hollywood Park, Inc., Del. Supr., 457 A.2d 339, 343 (1983);Standard Power Light Corp. v. Investment Assocs., Del. Supr., 51 A.2d 572, 576 (1947).
Any analysis of the contextual meaning of "or otherwise" must begin with Section B.1(H)(iii) of the Certificate. That Section entitles the holders of the Series A Preferred Stock to a class vote under two distinct scenarios. The first is where the Corporation desires to "change, by amendment to the Certificate . . . or otherwise, the terms and provisions of the [Series A] Preferred Stock so as to affect adversely the rights and preferences of the holders thereof . . . ." The second (which is described immediately after the above-quoted language and follows the word "or") arises when the Corporation "authorize[s] the issuance of any Senior Securities or Parity Securities or any securities exchangeable or convertible into any Senior Securities or Parity Securities." It is apparent that the drafters of the Certificate were concerned with protecting the holders of Series A Preferred Stock from two kinds of dangers: (i) a change to the terms and provisions of that stock adverse to the holders thereof; and (ii) the issuance of equity securities that would either dilute the Series A Preferred Stock or diminish its relative preferential position in the overall capital structure.
According to one commentator, the contractual rights of a preferred stock (e.g., its nights to dividend arrearages or preferential rights upon liquidation) may be altered in three ways: (i) by direct amendment to the certificate of incorporation; (ii) by merger, or (iii) by the issuance of prior preferred stock. Richard M. Buxbaum, Preferred Stock — Law and Draftsmanship, 42 Cal. L. Rev. 243, 299 n. 287, 303 (1954). Section B.1(H)(iii) specifically addressed two of those means — amendment of the Certificate and the issuance of senior (or parity) preferred stock. If (as plaintiff's argue) that Section was intended to protect the holders of the Series A Preferred Stock from all three dangers, then "or otherwise" must be construed to the synonymous with mergers. That construction, while possible, is far from clear.
Unarguably, had the Certificate's drafters intended expressly to entitle the Series A Preferred Stockholders to a class vote in a merger, they knew fully well how to do so. In Section B.2(G), the Certificate explicitly confers that very right upon the holders of Junior Preferred Stock in the following language (with emphasis added):
The holders of shares of Junior Preferred Stock shall have no voting rights whatsoever, except for any voting rights to which they may be entitled under the laws of the State of Delaware, and except that for so long as any shares of the Junior Preferred Stock remain outstanding, the Corporation will not, either directly or indirectly or through merger or consolidation with any other corporation.
Section B.2(G) then enumerates specific actions that the Corporation may not take without affording the holders of Junior Preferred Stock a class vote. Included are actions that would "amend, alter or repeal any of the provisions of the Certificate . . . so as to affect adversely the preferences, special rights or powers of the Junior Preferred Stock . . . ."
This clear and explicit expression of a right to a class vote in the event of a merger stands in stark contrast to Section B.1(H)(iii), which contains no such expression. If "or otherwise" includes mergers, those two words must do the work of the entire underscored phrase in Section B.2(G) quoted above. That argument is strained at best. The word "merger" is nowhere found in the provision governing the Series A Preferred Stock. The drafters' failure to express with clarity an intent to confer class voting rights in the event of a merger suggests that they had no intention of doing so, and weighs against adopting the plaintiffs' broad construction of the words "or otherwise". See Warner, 583 A.2d at 970-71.
No other provision in the Certificate supports the plaintiffs' broad construction of "otherwise". At oral argument the plaintiffs suggested (for the first time) that Section B.1(H)(iv) provides such support. Section B.1(H)(iv) specifies three kinds of corporate actions that will not require a class vote and "shall note be deemed to affect adversely the rights, preferences, privileges and voting rights of shares of [Series A] Preferred Stock." The argument runs as follows: Section B.1(H)(iii) defines a broad, all-inclusive category of corporate actions that require a class vote, while Section B.1(H)(iv) (which immediately follows Section B.1.(H)(iii)), carves out three specific exceptions to that broad category. Unless the phrase "or otherwise" carries the more expansive possible meaning, one enumerated exceptions to Section B.1.(H)(iii) would be necessary. I disagree.
As support for their position, the defendants also point to the absence of any reference to a class voting right in the October 19, 1988 Proxy Statement Prospectus, relating to the issuance of the Series A Preferred Stock (the "Prospectus"). Tat argument is not persuasive, because the Prospectus only repeats verbatim the language from Section B.1(H)(iii) at issue here. (Boyer Aff. Ex. A., 112.) The plaintiffs, however, can hardly gain comfort from that disclosure document, since it provides potential investors with several summary description of the Series A. Preferred Stock, yet makes no specific reference to a right to a class vote in the event of a merger. (Id. at 12, 16-17, 24, 112.)
Section B.1(H)(iv) provides as follows:
(a) The creation, authorization or issuance of any shares of any Junior Securities, or the creation, authorization or issuance of any obligation or security convertible into or evidencing the right to purchase any Junior Securities, (b) the creation of any indebtedness of any kind of the Corporation, or (c) the increase or decrease in the amount of authorized capital stock of any class, including the Preferred Stock, but excluding the amount of Cumulative Exchangeable Preferred Stock, or any increase, decrease or change in the par value of any such class other than the Preferred Stock, shall not require the consent of the holders of Cumulative Exchangeable Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges and voting rights of shares of Cumulative Exchangeable Preferred Stock.
The plaintiffs' argument is persuasive only if Section B.1(H)(iv) cannot be harmonized with a narrow construction of "or otherwise." Even assuming (arguendo) that that phrase is surplusage, the first and third categories of corporate actions enumerated in Section B.1(H)(iv) can be harmonized with Section B.1(H)(iii) narrowly construed. That is, the creation, authorization or issuance of junior securities, a change in the amount of authorized capital stock, and a change in the par value of any class of stock all require other an amendment to the Certificate or (where permissible under § 151 (g)) the filing of a certificate of designation. That leaves only the second enumerated category. " the creation of any indebtedness of any kind of the Corporation." However, that category, upon further analysis, does not support the plaintiffs' position either.
No matter how "or otherwise is construed, the second B.1(H)(iv) category is consistent with Section B.1(H)(iii), which forbids the Corporation form creating "any securities exchangeable or convertible into any Senior Securities or Parity Securities" without a class vote. That quoted language, which is unrelated to the prong of Section B.1(H)(iii) that includes "or otherwise, would encompass senior or parity convertible bonds or debentures. To that extent the second enumerated category merely excepts from the class-vote requirement of Section B.1(H)(iii) the creation of such convertible debt securities, and is therefore irrelevant to the disputed phrase "or otherwise."
Thus, the plaintiffs' position must necessarily rest upon the remaining breadth of the phrase "any indebtedness of any kind." That phrase would include debt that is not convertible into preferred stock. However, the very breadth of that category hurts the plaintiffs' case. "[A]ny indebtedness" would include even routine borrowing such as the purchase of inventory on credit. That kind of borrowing would not change the terms and provisions of Series A Preferred Stock, and therefore goes beyond the limits of Section B.1(H)(iii) even when "or otherwise" is construed broadly.
Stated differently, Section B.1(H)(iv) does not carve out exceptions to a broadly construed Section B.1(H)(iii). Instead, Section B.1(H)(iv) describes actions that require no class vote, whether or not a class vote would otherwise be required under Section B.1(H)(iii). For that reason, the language "any indebtedness of any kind" is so broad as to be superfluous. It denies a class vote in circumstances where no right to a class vote is conferred. Nonetheless, the plaintiff's argue that the phrase itself must encompass mergers. Plaintiff's argument rests upon the plain meaning of "or otherwise" (i.e. any other actions) and the claimed absence of any plausible alternative construction.
Such imprecision could very well explain the use of a phrase as unhelpful as "or otherwise".
In this case the interpretations advocated by both sides are problematic. The defendants have not persuaded me that "by amendment . . . other otherwise" can, in this context, mean any action other than an amendment to the Certificate. Indeed, the only valid counterexamples that the defendants propose are different forms of amendments to the Certificate (e.g. restatement or repeal of its provisions, or a reclassification of preferred stock).
That does not mean, however, that the only tenable construction or "or otherwise" is a merger. The possibility remains that the phase could be surplusage, though, to be sure, a construction that gives no substantive effect to a phrase is intellectually unsatisfactory. Yet the very real possibility exists that the drafters, out of an overabundance of caution, simply wanted to describe in a shorthand way all actions similar in form and effect to an amendment, even though such actions are either already encompassed within the term "amendment" or are legally unavailable. See supra note 4.
Although "or otherwise" could conceivably (a) mean a merger or (b) have no substantive meaning, an interpretation of the Certificate cannot rest upon such speculative possibilities. For this and other reasons already discussed, the analysis must end where it began: by resort to the exacting burden that he plaintiffs must satisfy for their position to prevail. "Under the rule of strict construction, any ambiguity must be resolved against granting the challenged preferences, rights or powers."Waggoner, 581 A.2d at 1135. In other words, "nothing should be presumed" in favor of preferences. Holland v. National Automotive Fibres, Del Ch., 194 A. 124, 126 (1937), citing with approval in Waggoner, 581 A.2d at 1134. "They ought to be clearly expressed, if not by words of explicit import, then by necessary implication." Id.
No words of explicit import clearly express the voting right the plaintiffs claim exists in this case. No positive evidence supports the claim that the drafters intended to create such a right. Although one might argue (as the plaintiffs do) that that right exists by implication, it does not exist by necessary implication. To adopt the plaintiff's position would amount to presuming a preferential voting right. In the present case, however, where (at least) an ambiguity exists, our law requires that it be resolved against creating the preference. Therefore, the plaintiff's position must be rejected.
IV.
For the reasons discussed, I conclude that the Series A Preferred Stock is not entitled to a class vote on the proposed merger. Because a merger is not a corporate actions contemplated by the phrase "or otherwise", I need not decide whether the merger would adversely affect the rights and preferences of the holders of Series A Preferred Stock. Accordingly, this Court must deny the plaintiff's motion for a declaratory judgment that the holders of the Series A Preferred Stock are entitled to a class vote on the impending merger, because that class of Preferred Stock has no such right.
The Court has entered the attached form of Order implementing the rulings made in this Opinion.
ORDER
For the reasons set forth in the Court's Opinion of November 20, 1992, IT IS HEREBY ORDERED, DECREED, and DECLARED as follows:
1. The plaintiffs' motion for entry of judgment on Count III of the complaint, declaring that the holders of Series A Cumulative Exchangeable Preferred Stock are entitled to vote separately as a class with respect to the proposed merger of FLS Holdings, Inc. with FLS Acquisition Corp., is denied.
2. Pursuant to Rule 54(b), the Court expressly determines that there is no just reason for delay, and directs the entry of final judgment for the defendants with respect to Count III of the complaint.