The board of a Delaware corporation recommended that the corporation reincorporate as a Nevada corporation subject to a majority vote under Section 266 of the Delaware General Corporation Law. A stockholder filed an action alleging that the conversion was subject to a supermajority 66 2/3% vote pursuant to a provision – Article X – of the corporation’s certificate of incorporation that required such a vote “to amend or repeal, or adopt any provision” of the certificate. The plaintiff stockholder argued that the conversion would result in the amendment and repeal of the certificate and the adoption of provisions inconsistent with the articles contained in Article X, and that such actions required a two-thirds supermajority vote under the entity’s certificate of incorporation. Defendants, relying on the doctrine of independent legal significance, countered that conversion was not subject to the supermajority vote in Article X.
Upon competing motions for summary judgment, the Court ruled in defendants’ favor. The Court found that the “plain language of Article X” governed amendments under Section 242 of the DGCL, and therefore did not extend to a conversion under Section 266 of the DGCL, which is a different, formal corporate act. In reaching its decision, the Court relied on the doctrine of independent legal significance and “decades of caw law” from the Delaware Supreme Court and Court of Chancery. Because the stockholder vote on conversion was imminent the Court permitted the Plaintiff to take an immediate appeal pursuant to Chancery Rule 54(b); however, no appeal was filed and the corporation reincorporated in Nevada.
