In Robert G. Brown v. Lorrence T. Kellar et. al, Civil Action No. 2018-0687-MTZ (Del. Ch. December 21, 2018), the Delaware Court of Chancery granted in part and denied in part a motion for summary judgment by the plaintiff-stockholder, Robert G. Brown (“Brown”), to determine the composition of the board of directors (the “Board”) of SPAR Group, Inc. (“SGRP”), pursuant to 8 Del. C. § 225 (the “225 Action”). Denying Brown’s motion in part, the Court held that the 225 Action should survive summary judgment and continue to trial because the defendant-directors, the incumbent Board members of SGRP (the “Director Defendants”), asserted inequitable conduct by Brown bearing on the Board’s composition.

eversed one opinion of the Court of Chancery arising from a contest for control of Trans-Resources, Inc. The Court (i) affirmed the Court of Chancery’s judgment that defendant-below, Ari Genger (“Genger”), violated a status quo order by deleting files and permanently overwriting the unallocated free space on his computer hard drive and upheld a $3.2 million sanction imposed for that discovery misconduct (the “Spoliation Opinion”); (ii) affirmed the Court of Chancery’s decision that plaintiffs-appellees lawfully possessed a majority voting interest in Trans-Resources and the right to elect the majority of the board of directors (the “Merits Opinion”); and (iii) reversed on jurisdictional grounds the Court of Chancery’s holding that Genger and a trust for the benefit of his daughter were not beneficial owners of any Trans-Resources shares (the “Side Letter Opinion”).All three opinions arose from an action by plaintiffs-appellees (collectively identified as the “Trump Group”) pursuant to 8 Del. C. § 225 to determine the rightful directors of Trans-Resources, a Delaware corporation that specializes in manufacturing fertilizer and producing chemicals for agricultural use. At its founding in 1985, Trans-Resources was wholly owned by TPR Investment Associates, Inc. (“TPR”), an entity that was in turn wholly owned by Genger, his wife, and two trusts for the benefit of Genger’s children (the “Orly Trust” and the “Sagi Trust”).

In this post-trial decision in a proceeding pursuant to 8 Del. C. § 225, the Court of Chancery held that the board of the Sudan Relief Fund, Inc. (the “Fund”), a charitable corporation, validly removed the plaintiff as a director, rejecting the plaintiff’s argument that the defendant directors violated their fiduciary duties and the corporation’s bylaws by removing him. Notably, the Court held that even if three of the eight directors at the time of the plaintiff’s removal had no valid claim to their director seats, they were nevertheless “de facto” directors, and board action taken during their tenure could not be invalidated for that reason alone.The Fund is a Delaware non-profit, nonstock corporation focused on providing relief to the people of southern Sudan.

Bishop Gassis v. Corkery, C.A. No. 8868-VCG (Del. Ch. May 28, 2014) (Glasscock, V.C.)May 28, 2014In this post-trial decision in a proceeding pursuant to 8 Del. C. § 225, the Court of Chancery held that the board of the Sudan Relief Fund, Inc. (the “Fund”), a charitable corporation, validly removed the plaintiff as a director, rejecting the plaintiff’s argument that the defendant directors violated their fiduciary duties and the corporation’s bylaws by removing him. Notably, the Court held that even if three of the eight directors at the time of the plaintiff’s removal had no valid claim to their director seats, they were nevertheless “de facto” directors, and board action taken during their tenure could not be invalidated for that reason alone.The Fund is a Delaware non-profit, nonstock corporation focused on providing relief to the people of southern Sudan.

In this post-trial decision in a proceeding pursuant to 8 Del. C. § 225, the Court of Chancery invalidated stockholder action by written consent on the ground that the proxy solicitation materials failed to disclose an agreement by which a bankruptcy trustee, who had control of a substantial block of the company’s stock, agreed to provide a proxy in exchange for a seat on the company’s board.The case arose out of a struggle for control of CardioVascular BioTherapeutics, Inc. (“Cardio”) between its founder, Daniel Montano, and a large creditor, Calvin Wallen. Thirty million shares of Cardio stock were held by Vizier Investment Capital Limited (“Vizier”), an entity jointly owned by Montano and his ex-wife.

Flaa v. Montano, C.A. No. 9146-VCG (Del. Ch. May 29, 2014) (Glasscock, V.C.)May 29, 2014In this post-trial decision in a proceeding pursuant to 8 Del. C. § 225, the Court of Chancery invalidated stockholder action by written consent on the ground that the proxy solicitation materials failed to disclose an agreement by which a bankruptcy trustee, who had control of a substantial block of the company’s stock, agreed to provide a proxy in exchange for a seat on the company’s board. The case arose out of a struggle for control of CardioVascular BioTherapeutics, Inc. (“Cardio”) between its founder, Daniel Montano, and a large creditor, Calvin Wallen.

[51] It is important to note that stockholders’ rights under Section 223(c) are in addition to their rights under Section 225, which provides to stockholders and directors (andofficers whose title to office is contested) the right to contest the validity of “any election, appointment, removal or resignation of any director or officer of any corporation[.]” 8 Del. C. § 225(a). Well-established Court of Chancery precedent expressly holds that director action under Section223 may be contested pursuant to Section 225.

In this action brought under 8 Del. C. § 225, Michael Flaa (the “Plaintiff”) sought to confirm the removal of certain members (the “Defendants”) of the board of CardioVascular BioTherapeutics, Inc. (“Cardio”) by action taken by written stockholder consent. The Court granted the Defendants’ motion for summary judgment, finding that the written stockholder consents delivered on behalf of Vizier Investment Capital Limited (the “Vizier Consents”), which represented 16.6% of the outstanding Cardio shares, were invalidly executed.

In this case, as part of a sale of a majority interest, a stockholder agreement granted the founders the ability to designate members to the board of directors so long as at least one founder remained at the company as an officer or employee. The agreement also granted the board the ability to hire and fire executive employees, but did not allow the board to terminate non-executive employees. In addition, the stockholder’s agreement required that the company use reasonable efforts to ensure the rights in the agreement remained effective for the founders’ benefit.Following the sale, the board attempted to remove the remaining founders from the company in order to undermine the founders’ designation rights. Some of the founders were non-executive employees that the board was unable to remove, however. Therefore, the board appointed a new CEO to terminate these employees. In response, the plaintiffs filed suit under 8 Del. C. § 225. In its post-trial opinion, the Court held that the CEO acted for the company in carrying out the terminations and, therefore, was bound by the reasonable efforts provision. Therefore, because the company caused the non-occurrence of the requirement under the agreement, the founders retained their entitlement to appoint members to the board.

After purporting to appoint himself as sole director and seeking to take certain judicial actions on the Company’s behalf, however, a Florida court instructed Petitioner to obtain declaratory judgment from a competent Delaware court that he was authorized to take such action as a majority stockholder.Petitioner then filed an application in the Court of Chancery, seeking a declaration under 8 Del. C. § 225 that he was a validly elected director and that he controlled a majority interest in the Company. Petitioner alternatively sought an order, under Section 211, compelling the Company to hold an annual meeting of stockholders for the election of directors.