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Moran v. Household Int'l, Inc. - 490 A.2d 1059 (Del. Ch. 1985)


A board of directors may not use the corporate machinery for the purpose of obstructing the legitimate efforts of dissident stockholders to undertake a proxy contest against management.


Plaintiff shareholders initiated an action, individually and derivatively, against defendant corporate board directors, seeking to invalidate the adoption of a preferred stock rights dividend plan. The action was made on the basis that the plan abridged fundamental rights of ownership by restricting the alienability and marketability of the shares and severely limited the ability of shareholders to engage in proxy contests. Defendant board initiated a counterclaim for breach of fiduciary duty. The court approved the adoption of the plan.


Is defendants’ adoption of preferred stock rights dividend plan a valid exercise of managerial judgment?




The court approved the adoption of the plan and held that the adoption of the plan was a proper exercise of managerial judgment, under the business judgment rule. The court explained that, while the plan indirectly limited alienation of shares and the conduct of proxy contests, those features were sustainable, within the parameters of the business judgment rule, as necessary to protect the corporation and all its constituencies from the coercive nature of certain partial tender offers. Next, the court considered the counterclaim. The court found that, based on the evidence presented at trial, that the counterclaim was, at best, an offensive weapon used for defensive purposes. The court concluded that the counterclaim was totally lacking in evidentiary support.

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