Thursday, November 21, 2013

Datapoint Corp. v. Plaza Securities Co. case brief

Datapoint Corp. v. Plaza Securities Co. case brief summary
496 A.2d 1031 (1985)

Defendant appealed a judgment from the Court of Chancery (Delaware) that granted plaintiffs a preliminary injunction against enforcement of a bylaw adopted by defendant's board of directors, finding the bylaw unenforceable because its provisions directly conflicted with the power conferred upon shareholders by Del. Code Ann. tit. 8, § 228.

Plaintiffs advised defendant that they were interested in acquiring control of defendant. Being opposed to the action, defendant's board of directors (board) rejected plaintiffs' proposal. Plaintiffs subsequently renewed the offer and informed the board that if again the offer was rejected, plaintiffs would solicit consent from defendant's shareholders. At that time, defendant's certificate of incorporation lacked any provision relating to the solicitation of shareholder consents under Del. Code Ann. tit. 8, § 228. Subsequently, the board adopted a bylaw to regulate shareholder consents. Plaintiffs sought and obtained a preliminary injunction against enforcement of the bylaw, as the trial court found the bylaw to be in direct conflict with the statutory grant of power to the shareholders under § 228.

On appeal, the court affirmed, holding that the bylaw was clearly in conflict with the letter and intent of § 228 and was so pervasive as to intrude upon fundamental stockholder rights guaranteed by statute.

The judgment was affirmed. The lower court properly concluded that defendant's bylaw was unenforceable because it limited the taking of corporate action by written shareholder consent in lieu of a stockholders' meeting and was thus in direct conflict with power conferred upon shareholders by state statute.

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