Friday, February 15, 2013

Portnoy v. Cryo-Cell International, Inc. case brief

Portnoy v. Cryo-Cell International, Inc. case brief summary
940 A.2d 43 

SYNOPSIS: Plaintiff, a dissident stockholder, sued defendants, the corporation, the corporation's chief executive officer (CEO), and the corporation's directors, under Del. Code Ann. title 8, § 225, challenging the seating of the management slate of directors in an election. The stockholder requested the court to seat the stockholder's slate of directors and sought reimbursement for his fees and expenses, not only in a proxy fight, but in the litigation.

-Before the corporation's annual meeting, the CEO knew that the corporation's existing board of directors and management were losing an election for their positions.
-The CEO therefore entered into an alliance with a stockholder whereby the stockholder was to be added as a director. 
-Additionally, the CEO agreed that, if the management slate of directors won the election, the board was to add another seat after the election that the stockholder's designee would fill. 
-The CEO then used a combination of threats and inducements to secure the votes of another stockholder. -Finally, during the annual meeting the CEO extended the meeting to gain time for the management slate to be elected. 

The court found that the election results were tainted by the inequitable behavior of the CEO and her allies and were to be set aside.

-In particular, the stockholders cast their votes in ignorance of material facts regarding the promise made as to a second board seat and the pressure that the CEO was exerting on a stockholder -- both of which involved the use by the CEO of corporate resources and fiduciary authority motivated by the desire to protect herself from the risk of losing her corporate offices.

OUTCOME: The court declined the dissident stockholder's request to declare his side the victor in the election process. Instead, the court required that the corporation have another election at a special meeting, with the management slate of directors required to fund their own reelection campaign and to pay any costs incurred by the corporation in holding a special meeting, including the cost of a special master to preside over the meeting.

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