Two weeks ago, Vice Chancellor J. Travis Laster denied a proposed stipulated consolidation and scheduling order. The proposed order directed that the consolidated cases be captioned “In re Astex Pharmaceuticals, Inc. Shareholders Litigation”. What could be wrong with that? The cases, after all were class action lawsuits against Astex Pharmaceuticals, Inc.
I don’t know why the Vice Chancellor denied the order, but his comments evidenced a clear objection to the case’s appellation:
Shareholders litigation? Under what state’s corporate law do you believe you are litigating?
Things Have Come To A Pretty Pass
Recently, the M & A Law Professor’s Blog noted the Vice Chancellor’s evident displeasure with the nomenclature and added the following comment:
Laster’s effort is a small one to move away from the convention of calling representative litigation in Delaware shareholder litigation. Since the corporate code refers only to stockholders, proper usage should indicate captioning shareholder litigation, stockholder litigation.
And here is where I’ll join the debate.
The Delaware General Corporation Law formerly included four references to “shareholders” (Sections 141(k), 144(a)(2), 144(a)(3), and 251(g)). Legislation enacted in 2010 eliminated three of the references and now “shareholder” appears only in Section 251(g). 77 Del. Laws, c. 253. Thus, the assertion that the “corporate code [sic] refers only to stockholders” is not strictly accurate. Nonetheless, I’m surprised that the Court of Chancery would take offense at the use of the word because its own rules employ the term. Rule 23.1 is entitled “Derivative actions by shareholders” and begins “In a derivative action brought by one or more shareholders . . .”.
The Race to the Bottom blog followed up with a little research on the subject:
Nonetheless, we thought the tone harsh and the criticism unnecessary (whatever the Code uses, the terms shareholder and stockholder are synonymous). So we did a search on case names. The search was “In re” w/8 shareholder and came up with 16 case names that used “in re . . . shareholder” (see below) in 2013 alone. We then did the same search with “in re” w/8 stockholder and came up with one case name in 2013 (In re Plains Exploration & Production Co. Stockholder Litigation).
Finally, I did my own checking and was surprised to find that Vice Chancellor Laster has even used “shareholder” in a case with shareholder in the caption:
Second, plaintiffs claim that the Offer to Purchase does not disclose whether any large shareholders other than T. Rowe Price entered into any sort of agreement with CONSOL to tender their shares.
In re CNX Gas Corp. S’holders Litig., 4 A.3d 397, 419 (Del. Ch. 2010). In another order, Vice Chancellor Laster labeled one section “Aveta Is Entitled To Expenses Incurred Pursuing The Other Shareholders”. Aveta Inc. v. Bengoa, 2010 Del. Ch. LEXIS 175 at *23 (Del. Ch. Aug. 13, 2010)
You Say Eether and I say Eyether
The California General Corporation Law is the enantiomer of the Delaware law. The California law employs the term “shareholder” which is defined in Section 185 and uses the term stockholder only once – in Section 204(a)(11) (“stockholder” makes several appearances in other divisions of the Corporations Code).