If there is a dispute over the identity of the directors of a Delaware corporation, the corporation, its stakeholders and those with whom it does business require prompt certainty as to who is in charge. For that reason, Section 225 of the Delaware General Corporation Law provides for a summary proceeding to determine who rightfully comprises the board and officers of a Delaware corporation. While there is a rich body of Section 225 case law, there are few decisions addressing whether the party who loses at the trial court level is entitled to a stay of the court’s order pending an appeal. The Court of Chancery recently addressed this issue in Klaassen v. Allegro Development, C. A. No. 8626-VCL (Del. Ch. November 7, 2013), known as Klaassen II, and partially stayed its post-trial order to allow the losing CEO to pursue an expedited appeal. In this decision, the court provided guidance on how it may limit the conduct of a judicially sanctioned board while a party challenges that outcome on appeal. The court also identified a significant issue that, once resolved by the Delaware Supreme Court, likely will affect how parties resolve leadership transitions when they are at odds over how to manage the company’s business and affairs.
In Klaassen v. Allegro Development, C. A. No. 8626-VCL (Del. Ch. October 11, 2013), known as Klaassen I, the Court of Chancery rejected as barred by laches and acquiescence a CEO/stockholder/director’s challenge to his removal at a board meeting seven months earlier. Plaintiff Eldon Klaassen was the founder and CEO of Allegro Development Corp. Allegro had a five-person board consisting of Klaassen, two directors designated by a preferred stockholder investor and two directors recommended by Klaassen and approved by the preferred stock investor. In Klaassen I, the court outlined the four non-management directors’ growing frustration with the company’s performance and with Klaassen’s management style, culminating in a Nov. 1, 2012, regular meeting of the board.
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