Williams v. Geier

Supreme Court of Delaware · 1996 · Corporations

CorporationsCharter amendmentsShareholder voting rightsBusiness judgment ruleSection 242recapitalizationtenure votingsuper-voting shares

Facts

Milacron adopted a recapitalization that gave existing common shares ten votes per share, but any share sold or otherwise transferred reverted to one vote per share until held by the new owner for thirty-six consecutive months. The plan applied to all stockholders, including a Family Group that owned or controlled more than 50 percent of the company's voting power and was assumed for purposes of decision to be a controlling bloc. The board had seven independent, disinterested directors out of ten, and it recommended the amendment as advisable and in the best interests of the company and its shareholders. The proxy disclosed the plan's benefits and disadvantages, including that it would concentrate voting power in long-term holders, could deter takeovers, could be hard to repeal later, and that approval was virtually assured because of the Family Group's voting power.

Issue

When an independent board recommends a charter amendment under 8 Del. C. § 242 and the shareholders approve it after full disclosure, should the amendment be reviewed under Unocal or Blasius, or instead under the business judgment rule with the shareholder vote given dispositive effect? Also, did the shareholder vote fail because of coercion or because the amendment benefited the controlling bloc more than the minority?

Rule

Where a board does not act unilaterally but instead recommends a charter amendment under 8 Del. C. § 242 for shareholder approval, neither Unocal nor Blasius applies merely because the amendment has defensive or control effects. The board's recommendation is reviewed under the business judgment rule if the presumption is not rebutted, and a fully informed shareholder vote approving the amendment is dispositive absent fraud, waste, manipulative conduct, or other inequitable conduct. Delaware law does not require a majority-of-the-minority vote for such a Section 242 amendment simply because a controlling stockholder bloc benefits from it.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Harbor Forge, Inc., a Delaware manufacturer based in Cleveland, has a nine-member board, six of whom are independent outside directors. The board recommends a charter amendment creating long-term voting rights that may make unsolicited acquisitions harder, and the amendment is later approved by a majority of the outstanding shares after a proxy fully describes both the benefits and drawbacks.

If a minority stockholder challenges the amendment solely because it has anti-takeover effects, what is the most likely standard of review for the board's recommendation?

Explanation. The majority opinion holds that neither Unocal nor Blasius applies merely because a charter amendment has defensive or control effects when the board did not act unilaterally. Where an independent board recommends a Section 242 amendment and stockholders approve it after full disclosure, the board's recommendation is reviewed under the business judgment rule unless that presumption is rebutted.