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Supreme Court of Delaware
March 31, 2010, Submitted; April 21, 2010, Decided
No. 64, 2010, No. 85, 2010
[*378] HOLLAND, Justice:
This is a consolidated appeal from a final judgment entered by the Court of Chancery pursuant to Rule 54(b). This proceeding involves competing requests for relief under section 225 of the Delaware General Corporation [**2] Law (the "DGCL"). 1 At issue is which of two competing factions lawfully controls the board of directors (the "Board") of EMAK Worldwide, Inc. ("EMAK").
Prior to December 18, 2009, the Board had six directors and one vacancy. On December 18, one director resigned, creating a second vacancy. The plaintiffs-appellees contend that on December 20 and 21, Take Back EMAK, LLC ("TBE") delivered sufficient consents (the "TBE Consents") to remove two additional directors without cause, and fill three of the resulting vacancies with Philip Kleweno, Michael Konig, and Lloyd Sems. Incumbent director Donald A. Kurz ("Kurz") is a member of TBE. If valid, the TBE Consents would establish a new Board majority.
The defendants-appellants contend that on December 18, 2009, Crown EMAK Partners, LLC ("Crown") delivered sufficient consents (the "Crown Consents") to [*379] amend EMAK's bylaws (the "Bylaw Amendments") in two important ways. First, the Crown Consents purportedly amended Section 3.1 of the Bylaws ("New Section 3.1") to reduce the size of the Board to three directors. Because Crown has the right to appoint two directors under the terms of EMAK's Series AA Preferred [**3] Stock, a by-law reducing the Board to three, if valid, would give Crown a Board majority. Second, the Crown Consents purportedly added a new Section 3.1.1 to the Bylaws ("New Section 3.1.1") providing that if the number of sitting directors exceeds three, then the EMAK CEO will call a special meeting of stockholders to elect the third director, who will take office as the singular successor to his multiple predecessors. The defendants contend that the Bylaw amendments are valid and that the next step is for the EMAK CEO to call a special meeting under New Section 3.1.1.
The Court of Chancery concluded that the TBE Consents validly effected corporate action and that, therefore, the lawful Board consists of incumbent directors Kurz, Jeffrey Deutschman, and Jason Ackerman, and newly elected directors Kleweno, Konig, and Sems. Consequently, one vacancy remains. The Court of Chancery also concluded that the bylaw amendments adopted through the Crown Consents conflict with the DGCL and are void. Therefore, the court held, the Crown Consents were ineffective either to reduce the size of the Board or to require the calling of a special meeting.
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992 A.2d 377 *; 2010 Del. LEXIS 182 **
CROWN EMAK PARTNERS, LLC, Defendant/Counterclaim Plaintiff, Appellant, v. DONALD A. KURZ, SEMS DIVERSIFIED VALUE, LP, LLOYD M. SEMS, PHILIP S. KLEWENO, MICHAEL KONIG, and TAKE BACK EMAK, LLC, Plaintiffs/Counterclaim Defendants, Appellees. JAMES L. HOLBROOK, JR., Defendant Below, Appellant, v. DONALD A. KURZ and SEMS DIVERSIFIED VALUE, LP, Plaintiffs Below, Appellees.
Subsequent History: On remand at, Costs and fees proceeding at Kurz v. Holbrook, 2010 Del. Ch. LEXIS 186 (Del. Ch., July 29, 2010)
Prior History: [**1] Court Below -- Court of Chancery of the State of Delaware. C.A. No. 5019. Court Below -- Court of Chancery of the State of Delaware. C.A. No. 5019.
Kurz v. Holbrook, 989 A.2d 140, 2010 Del. Ch. LEXIS 24 (Del. Ch., 2010)
Disposition: AFFIRMED in part; REVERSED in part; and REMANDED.
shares, voting, stockholders, proxy, consents, Stock, Bylaws, elected, Solicitation, omnibus, brokers, stock ledger, breakdown, written consent, ownership, banks, annual meeting, record holder, voting rights, vote buying, purposes, holders, street name, directorships, registered, number of directors, recording date, shareholder, holds, successor
Business & Corporate Law, Meetings & Voting, Voting Shares, General Overview, Evidence, Inferences & Presumptions, Presumptions, Proxy Agreements, Corporations, Articles of Incorporation & Bylaws, Interpretations of Bylaws, Annual Meetings, Director Elections & Removals, Directors & Officers, Terms in Office, Elections, Removal & Resignation