In two recent opinions, The Cirillo Family Trust v. Moezinia, 2018 WL 3388398 (Del. Ch. July 11, 2018), and Charles Almond v. Glenhill Advisors, 2018 WL 3954733 (Del. Ch. Aug. 17, 2018), the Delaware Court of Chancery exercised its powers under Section 205 of the Delaware General Corporation Law (the DGCL) to validate acts that, due to technical problems in their authorization, may have otherwise been void or voidable. These opinions illustrate that the court, in reviewing petitions under Section 205, will use its equitable powers to ensure that technical defects in authorization do not result in plainly inequitable outcomes.
Cirillo involved Endo Pharmaceuticals, Inc.’s acquisition in 2014 of DAVA Pharmaceuticals, Inc., a closely held corporation with only 31 stockholders. Like many private company mergers, the stockholder approval was obtained by written consent pursuant to Section 228 of the DGCL, with DAVA’s nine largest holders (representing approximately 95 percent of the outstanding stock) approving the merger by written consent shortly after the execution of the merger agreement. The stockholder plaintiff, which held less than 1 percent of DAVA’s outstanding stock, declined to sign the consent and, after receiving a notice of merger and appraisal rights, filed suit, seeking, among other things, rescissory damages on the grounds that the stockholder consents were not properly dated, as was required by Section 228(c) as in effect at the time, thereby rendering the merger void. In response, DAVA asserted a counterclaim under Section 205, petitioning the court to validate the merger despite the defects in the consents.
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