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Keywords

fiduciarywillcorporationfiduciary dutygood faithbreach of fiduciary duty
corporationvisagood faith

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Williams v. Geier, 671 A.2d 1368, 64 USLW 2493

Facts

Cincinnati Milacron, a Delaware corporation, proposed a recapitalization plan that allowed common stockholders to receive ten votes per share on a record date, reverting to one vote per share upon transfer until held for three years. Minority shareholder Williams argued that this plan favored majority stockholders and was intended to entrench management. The Board of Directors, consisting of independent and inside directors, recommended the amendment, which was approved by a majority of stockholders at the annual meeting. Williams subsequently filed suit challenging the validity of the amendment and recapitalization.

The essence of the Recapitalization is to provide for a form of “tenure voting” whereby holders of common stock on the record date would receive ten votes per share.

Issue

Did the amendment to Cincinnati Milacron's certificate of incorporation and the resulting recapitalization plan violate Delaware law or the rights of minority shareholders?

Did the amendment to Cincinnati Milacron's certificate of incorporation and the resulting recapitalization plan violate Delaware law or the rights of minority shareholders?

Rule

The business judgment rule applies to the actions of an independent majority board in recommending amendments to stockholders, and a fully informed majority stockholder vote is dispositive.

The business judgment rule applies to the action of the independent majority of the Board in recommending the advisability of the Amendment to the Milacron stockholders.

Analysis

The court applied the business judgment rule, determining that the Board acted in good faith and with due care in recommending the amendment. The court found that the Recapitalization was a reasonable response to corporate needs and that the stockholder vote was valid, as it was based on full and fair disclosure. The court concluded that the presence of a controlling majority did not invalidate the stockholder vote, as there was no evidence of breach of fiduciary duty.

The court applied the business judgment rule, determining that the Board acted in good faith and with due care in recommending the amendment.

Conclusion

The Delaware Supreme Court affirmed the lower court's decision, holding that the amendment and recapitalization were valid due to the application of the business judgment rule and the approval of a fully informed majority of stockholders.

We AFFIRM the judgment of the Court of Chancery, but on the following grounds: (1) the instant factual situation implicates neither Unocal nor Blasius; (2) the business judgment rule applies to the action of the independent majority of the Board in recommending the advisability of the Amendment to the Milacron stockholders; and (3) since a fully informed majority of the stockholders voted in favor of the Amendment pursuant to the statutory authority of 8 Del.C. § 242, the stockholder vote is dispositive.

Who won?

Cincinnati Milacron prevailed in the case because the court found that the amendment and recapitalization were valid and supported by a fully informed majority vote.

Cincinnati Milacron prevailed in the case because the court found that the amendment and recapitalization were valid and supported by a fully informed majority vote.

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