VantagePoint Venture Partners 1996 v. Examen, Inc.

Supreme Court of Delaware · Corporations

Corporationsinternal affairs doctrineshareholder voting rightschoice of lawmergersDelaware corporationpreferred stockclass vote

Facts

Examen was a Delaware corporation, and VantagePoint, a Delaware limited partnership, owned 83 percent of Examen's outstanding Series A Preferred Stock but no common stock. Examen entered into a merger agreement with a Delaware subsidiary of Reed Elsevier, and under the Delaware General Corporation Law and Examen's certificate of incorporation and certificate of designations, the merger required approval by a majority of common and Series A Preferred voting together as a single class. If voting occurred by separate class, VantagePoint could block the merger; VantagePoint acknowledged that under Delaware law alone it had no class vote. VantagePoint instead relied on California Corporations Code section 2115 and section 1201(a), arguing that Examen was a quasi-California corporation and that preferred holders were entitled to a separate class vote.

Issue

Whether a preferred shareholder of a Delaware corporation was entitled to a separate class vote on a merger by virtue of California Corporations Code section 2115, or whether Delaware law exclusively governed that voting-rights question under the internal affairs doctrine. More specifically, the question was whether shareholder voting rights in this merger were an internal affairs matter governed solely by the law of Examen's state of incorporation.

Rule

Questions involving a corporation's internal affairs, including shareholder voting rights and the relationships among the corporation and its shareholders, are governed exclusively by the law of the state of incorporation. Delaware's choice-of-law rules and federal constitutional principles require that only one state regulate a corporation's internal affairs, except in the rarest situations.

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North Harbor Analytics, Inc. is incorporated in Delaware but has most of its employees, sales, and assets in California. Its certificate provides that in a merger all common and preferred shares vote together as a single class. A preferred shareholder in San Diego argues that California law entitles preferred holders to a separate class vote because the company has extensive California contacts.

Which law should govern whether the preferred shareholder has a separate class vote on the merger?

Explanation. The majority held that shareholder voting rights in a merger concern the relationship between the corporation and its shareholders, which is a core internal-affairs matter. For internal affairs, only the law of the state of incorporation applies, to ensure certainty, predictability, and uniformity. Thus Delaware law governs exclusively, even if another state has extensive corporate contacts or a conflicting statute. (Derived from VantagePoint Venture Partners 1996 v. Examen, Inc. (n.d.).)