State of Wisconsin Investment Board v. Peerless Systems
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C OURT OF CHANCERY OF THE STATE OF DELAWARE W I L L I A M 8. C H A N D L E R III P.O. B O X 581 CHANCELLCJR January 5,200O G E O R G E T O W N , D E L A W A R E 1994.7 David C. McBride Bruce Silverstein Danielle Gibbs Young Conaway Stargatt & Taylor P.O. Box 391 Wilmington, DE 19899 Rodman Ward, Jr. Stephen D. Dargitz Skadden, Arps, Slate, Meagher & Flom P.O. Box 636 Wilmington, DE 19899 Re: State of Wisconsin Investment Board v. Peerless Systems Corp., et al. Civil Action No. 17637 Dear Counsel: Defendants Peerless Systems Corporation ( Peerless ) and Edward A. Galvadon have moved for reargument on a portion of this Court s December 4, 2000 Memorandum Opinion pursuant to Rule 59(f).2 The defendants challenge the Court s denial of summary judgment to both the plaintiff, the State of Wisconsin Investment Board ( SWIB ), and the defendants on State of Wisconsin Investment Board v. Peerless Systems Corp., Del. Ch., C.A. No. 17637, Chandler, C. (Dec. 4, 2000). 2 Ct. Ch. R. 59(f). 1 SWIB s claim that the defendants breached their fiduciary duties to all shareholders by exercising corporate Ipower to manipulate and interfere with a shareholder vote. More specifically, the defendants question the Court s conclusion that the defendants acted ywith the primary purpose of interfering with or impeding an otherwise valid shareholder vote and that the adjournment was invalid absent a compelling justification. For the reasons described below, I deny the defendants motion. I pass over a more thorough recitation of the facts involved in this matter as both parties are already intimately familiar with them.3 Briefly, this lawsuit challenges an adjournment to the June 17, 1999 annual shareholders meeting of Peerless (the Annual Meeting ). The adjournment, called by Peerless s Chairman, Chief Executive Officer and President, Edward Galvadon, postponed the closing of the polls on a certain proposal to add l,OOO,OOO shares to the Peerless stock option plan ( Proposal 2 ). At the time of the Annual Meeting, Proposal 2 would have been defeated. Thirty days later, Peerless reconvened the Annual Meeting, Galvadon closed the polls on Proposal 2, and that proposal passed by a slim margin. The standard on a motion for reargument is well settled. The motion generally will not be granted 3 See SWIB v. Peerless, mem. op. at 2-14. 2 unless the Court has overlooke,d a decision or principle of law that would have a controlling effect or the Court has misapprehended the law or the facts so that the outcome of the decision would be affected.4 Where the motion for reargument merely rehashes arguments previously made by the moving party, the motion must be denied. In support of their motion for reargument, the defendants assert that the Court incorrectly applied the following rule: [T]he application of the compelling justification standard set forth in Blasius is appropriate only where the primary purpose of the board s action. [is] to interfere with or impede exercise of the shareholder franchise, and the stockholders are not given a full and fair opportunity to vote. 6 The defendants argue that they did not interfere with or impede the exercise of the shareholder franchise by adjourning the Annual Meeting on June 17 to gain more votes on Proposal 2. Further, the defendants argue that the Court s decision to deny summary judgment, in contradistinction to existing Delaware law, assumes that there was an expectation of finality at the June 17 session of the annual meeting. 7 The defendants also argue that [tlhe rule announced by the Court will seriously erode procedural due 4 Miles, Inc. v. Cookson America, Inc., Del. Ch., 677 A.2d 505, 506 (1995) (quoting Stein v. Orloff, Del. Ch., C.A. No. 7276, slip op. at 3, Hartnett, V.C. (Sept. 25, 1985)). Miles v. Cookson, 677 A.2d at 506. SWIB v. Peerless, mem. op. at 22 (quoting Williams v. Geier, Del. Supr., 671 A.2d 1368, 1376 (1996)). 7 Defs. Mot. for Reargument, 7 3. 3 process at annual stockholders meetings by eliminating altogether the universally accepted requirement that those who object to rulings from the chair must so inform management at the original session either in person, by an agent, or in writing. The defendants first argument merely challenges my application of the rule spelled out in Williams to the facts of this case. The defendants do not present a new argument or princ,iple of law that contradicts the Court s reading of the Williams standard. The defendants also present no reading of the facts of this case that would seem to contradict my own reading of the pertinent facts. For the reasons discussed at length in the Peerless decision, I believe that I have correctly apprehended and applied the law of Delaware concerning the adjournment claim. This basis for the motion for reargument seeks to rehash fundamental arguments behind the Court s decision and is without merit. The defendants next argue that the Court s conclusions directly conflict with the clear legal basis for adjournments of annual meetings within Delaware law. Here, the defendants seem to have misinterpreted my decision. Peerless in no way is meant to entirely foreclose the ability of a Defs. Mot. for Reargument, 17. 9 SWIB v. Peerless, mem. op. at 18-42. 4 Delaware corporation to reschedule or adjourn a shareholders meeting. The decision does stand for the principle, however, that in decid.ing to adjourn such a meeting, officers and directors must abide by their fiduciary duties to shareholders. Where a decision to adjourn is made due to an improper purpose, that decision may be challenged as a breach of fiduciary duty. Moreover, there clea-rly are numerous instances where a company may be entirely justified in calling for an adjournment. At oral argument, SWIB described three such occasions: where there is evidence of vote fraud, a disruption in the proxy process, or the absence of a quorum. I agree with this understanding of the law and note that this list is in no way exhaustive of the situations where an adjournment may be legally justified. In fact, Peerless, itself, may ultimately be found to have lawfully and equitably decided to adjourn its Annual Meeting based on the facts adduced at trial in this matter. All I have concluded at this point is that the facts on this point are in dispute. As a result, the defendants assertion that the Court s ruling creates a new rule of finality at shareholder meetings is simply not true. Defendants argument on this point is likewise without merit. Finally, I fail to see any merit in the defendants contention that the Peerless decision will seriously erode procedural due process at annual shareholder meetings. I directly addressed this issue in my discussion of 5 whether SWIB had standing to bring the adjournment claim at all after not attending either the Annual Meeting or the reconvening of the Annual Meeting and not formally objecting to the adjournment during the period between those two meetings. As noted in the Peerless opinion, this attendance and objection requirement simply cannot be the law of Delaware. The defendants have offered no reason beyond those already argued before the Peerless decision that calls the Court s judgment into question. Further, I note that in my view, Peerless actually fortifies the procedural due process guaranteed to shareholders of Delaware corporations by reinforcing the legitimacy of the shareholder voting process, the basic foundation of the corporate structure and of directorial power. For these reasons, I deny the defendants motion for reargument. IT IS SO ORDERED. William B. Chandler III WBCIII:meg oc: xc: Register in Chancery Vice Chancellors Law Libraries SWIB v. Peerless, mem. op. at 15-17. 6
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