Law School Case Brief
VantagePoint Venture Partners 1996 v. Examen, Inc. - 871 A.2d 1108 (Del. 2005)
The internal affairs doctrine applies to those matters that pertain to the relationships among or between the corporation and its officers, directors, and shareholders. The conflicts practice of both state and federal courts has consistently been to apply the law of the state of incorporation to the entire gamut of internal corporate affairs. The internal affairs doctrine does not apply where the rights of third parties external to the corporation are at issue, for example, contracts and torts.
On February 17, 2005, Examen, Inc. (Examen), a Delaware corporation, and a Delaware subsidiary of Reed Elsevier Inc. (Reed Elsevier) executed a Merger Agreement, which was set to expire on April 15, 2005, if the merger had not closed by that date. Under the Delaware General Corporation Law and Examen's Certificate of Incorporation, including the Certificate of Designations for the Series A Preferred Stock, adoption of the Merger Agreement required the affirmative vote of the holders of a majority of the issued and outstanding shares of the Common Stock and Series A Preferred Stock, voting together as a single class. Among the Series A preferred shareholder of Examen was VantagePoint Venture Partners, Inc. (VantagePoint). On March 3, 2005, Examen filed a Complaint in the Court of Chancery against VantagePoint seeking a judicial declaration that pursuant to the controlling Delaware law and under the Company's Certificate of Designations of Series A Preferred Stock, VantagePoint was not entitled to a class vote of the Series A Preferred Stock on the proposed merger between Examen Reed Elsevier. VantagePoint filed a counter-claim on March 8, 2005 in the California Superior Court seeking a declaration that Examen was required to identify whether it was a "quasi-California corporation" under section 2115 of the California Corporations Code, and therefore, subject to California Corporations Code section 1201(a). VantagePoint argued that if Examen is subject to California Corporations Code, then, VantagePoint was entitled to vote its shares as a separate class in connection with the proposed merger. The Court of Chancery determined that the question of whether VantagePoint, as a holder of Examen's Series A Preferred Stock, was entitled to a separate class vote on the merger, was governed by the internal affairs doctrine because the issue implicated "the relationship between a corporation and its stockholders." Since Delaware law governed the vote that was required to approve the merger between the two Delaware corporate entities, the Court of Chancery held that VantagePoint was not entitled to a separate class vote. Consequently, VantagePoint challenged the decision of the trial court, and reiterated its stance that it was entitled to a separate class vote on the proposed merger between Examen and Reed Elsevier.
Was VantagePoint Venture Partners, Inc. entitled to a separate class vote on the merger of Examen with a Delaware subsidiary of Reed Elsevier?
The Supreme Court of Delaware affirmed the Court of Chancery’s decision and held that the proposed merger between Examen, Inc. and a Delaware subsidiary of Reed Elsevier Inc. is governed by the internal affairs doctrine of Delaware, thus, VantagePoint Venture Partners, Inc. had no class vote.
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