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Law School Case Brief

Blasius Indus., Inc. v. Atlas Corp. - 564 A.2d 651 (Del. Ch. 1988)

Rule:

The rule that the reasonable exercise of good faith and due care generally validates, in equity, the exercise of legal authority even if the act has an entrenchment effect does not apply to action designed for the primary purpose of interfering with the effectiveness of a stockholder vote. Rather, closer scrutiny is to be accorded to such transaction. 

There is not a per se rule invalidating, in equity, every board action taken for the sole or primary purpose of thwarting a shareholder vote.

The demands of a feasible administration of the corporate franchise require that, absent fraud or other wrongdoing, proxy contests or consent contests be judged on the "ballots" and not on extrinsic evidence. 

Facts:

Two separate cases pitting the directors of Atlas Corporation against its largest shareholder, Blasius Industries were consolidated and tried together, requiring the court to determine who could sit on Atlas Corporation's board of directors.  The first challenged the validity of board action taken at a telephone meeting that added two new members to Atlas Corporation's board. The action was taken as an immediate response to the delivery to Atlas by Blasius the previous day of a form of stockholder consent that, if joined in by holders of a majority of Atlas' stock, would have increased the board of Atlas from seven to fifteen members and would have elected eight new members nominated by Blasius. The second action arose out of the consent solicitation itself and required the court to determine the outcome of Blasius' consent solicitation, which was warmly and actively contested on both sides. 

Issue:

Was the board action in question valid? Did the plaintiff’s consent solicitation garner enough support?

Answer:

No, for both questions.

Conclusion:

The court held as to the first case that even though Atlas Corporation acted on their view of the corporation's interest, their action constituted an offense to the relationship between corporate directors and shareholders, and thus was invalid and void. As to the second case, the court held the judges of election properly confined their count to the written "ballots" before them, and that plaintiff's consent solicitation failed to garner the support of a majority of Atlas Corporation’s shares.

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