In Totta v. CCSB Financial, C.A. No. 2021-0173-KSJM (Del. Ch. May 31, 2022) (McCormick, C.), the Delaware Court of Chancery held that a board of directors improperly applied a voting aggregation provision in the company’s charter that disenfranchised several stockholders. In so holding, Chancellor Kathaleen McCormick reinforced that Delaware twice-tests corporate conduct—first for legal validity, then second for equity. The chancellor also emphasized that, unless specifically authorized by Delaware’s General Corporate Law (DGCL), the contents of a corporation’s charter do not displace directors’ fiduciary obligations or override the court’s “enhanced scrutiny” review for transactions implicating shareholders’ sacrosanct voting rights.

In Totta, an insurgent stockholder (the iInsurgent) ignited a proxy battle against the board of directors of CCSB Financial Corp., the holding company for a small community bank in Kansas City. To neutralize this perceived threat, the directors invoked a provision in the company’s charter that prohibited a stockholder, and other stockholders “acting in concert” with that stockholder, from exercising more than 10% of the company’s voting power in an election (the voting limitation). Pursuant to the voting limitation, the board determined that the insurgent, his slate of nominees, and longtime friend of the insurgent (together, the insurgent group), all of whom were company stockholders, were acting in concert with each other, and thus the board instructed the inspector of elections not to count 37,175 votes in total. As a result, the incumbent slate of directors won reelection by 698 votes and none of the Insurgent’s nominees were elected.

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