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Keywords

plaintiffdefendantmotionfiduciarycorporate lawcorporationfiduciary dutybreach of fiduciary dutymotion to dismiss

defendantmotionfiduciarycorporationfiduciary dutybreach of fiduciary dutynovationmotion to dismiss

Related Cases

Carmody v. Toll Bros., Inc., 723 A.2d 1180

Facts

Toll Brothers, a Delaware corporation, adopted a 'dead hand' poison pill rights plan on June 12, 1997, to protect against potential hostile takeovers. The plan restricted the redemption of rights to the incumbent directors and their successors, which the plaintiff alleged interfered with shareholder voting rights and deterred proxy contests. The company had a successful history and was concerned about becoming a target for acquisition due to industry consolidation.

The firm whose rights plan is being challenged is Toll Brothers (sometimes referred to as 'the company'), a Pennsylvania-based Delaware corporation that designs, builds, and markets single family luxury homes in thirteen states and five regions in the United States. The company was founded in 1967 by brothers Bruce and Robert Toll, who are its Chief Executive and Chief Operating Officers, respectively, and who own approximately 37.5% of Toll Brothers' common stock.

Issue

Whether the 'dead hand' provision in Toll Brothers' rights plan is subject to legal challenge on the grounds that it violates Delaware General Corporation Law and/or the fiduciary duties of the board of directors.

At issue on this Rule 12(b)(6) motion to dismiss is whether a most recent innovation in corporate antitakeover measures—the so-called 'dead hand' poison pill rights plan—is subject to legal challenge on the basis that it violates the Delaware General Corporation Law and/or the fiduciary duties of the board of directors who adopted the plan.

Rule

The court applied principles of Delaware corporate law, particularly regarding the validity of poison pill provisions and the fiduciary duties of directors, including the need for any restrictions on director powers to be stated in the certificate of incorporation.

The critical issue on this motion is whether a 'dead hand' provision in a 'poison pill' rights plan is subject to legal challenge on the basis that it is invalid as ultra vires, or as a breach of fiduciary duty, or both.

Analysis

The court found that the 'dead hand' provision created different classes of directors with varying powers, which is not permissible under Delaware law unless explicitly stated in the corporation's charter. The provision was seen as a potential violation of the statutory powers of future boards and an interference with shareholder rights, thus supporting the claims of statutory invalidity and breach of fiduciary duty.

The court determines that the complaint states legally sufficient claims that the 'dead hand' provision of the Toll Brothers Rights Plan violates 8 Del. C. §§ 141(a) and (d).

Conclusion

The court concluded that the complaint stated legally sufficient claims against the 'dead hand' provision, leading to the denial of the defendants' motion to dismiss.

Who won?

The shareholder prevailed in the case as the court found the claims were ripe and legally sufficient, allowing the challenge to proceed.

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