C.A. No. 4473-VCN (Del. Ch. Sept. 28, 2009)
In this action brought by a common stockholder seeking to inspect books and records, the Court of Chancery found no credible basis to support an inference of wrongdoing under Section 220 of the DGCL where a board, acting in accordance with its corporate governance policy, refused to accept the resignations of three directors who received less than a majority of the stockholder vote at an annual meeting. Vice Chancellor Noble dismissed the complaint and entered judgment in favor of the defendant, Axcelis Technologies, Inc. (“Axcelis”).
The plaintiff demanded inspection of certain documents relating to the board’s refusal to accept the resignations and the board’s rejection, two months prior to the annual meeting, of two unsolicited acquisition proposals from a bidder who later purchased one of Axcelis’s assets. The plaintiff sought inspection to determine whether the board breached its fiduciary duties in connection with such decisions. The Court acknowledged that investigating suspected wrongdoing is a proper purpose under Section 220, but held that the plaintiff failed to present sufficient evidence of a credible basis from which the Court could infer wrongdoing.
The plaintiff claimed the Blasius standard of review should be applied because it believed the Axcelis board interfered with the corporate franchise for the purpose of entrenching itself by refusing to accept the resignations. Blasius Industries, Inc. v. Atlas Corporation, 564 A.2d 651 (Del. Ch. 1988). Alternatively, the plaintiff argued that the board’s decision to retain the three directors was a defensive measure designed to prevent a change of control, thereby requiring application of the Unocal/Unitrin standard of review. Unocal Corporation v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985); Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995). The Court determined that, because the plaintiff had failed to show any credible basis from which the Court could infer some wrongdoing on the part of the directors, it did not need to resolve the issue of what standard of review might apply.
As to the Blasius claim, the Court found no indication of any entrenchment motive where six of Axcelis’s seven directors were independent. Moreover, the Court found no evidence that the board refused to accept the resignations for the purpose of thwarting the will of the stockholders. The Court determined that the board acted in accordance with the corporate governance policy when it rejected the resignations because the policy gave the board that discretion.
As to plaintiff’s Unocal claim, the Court found no present threat to corporate control and no evidence that the board acted disloyally or in bad faith when it decided to rebuff the bidder’s offers to acquire Axcelis.
The full opinion is available here.