On November 3, 2010, in Airgas, Inc. v. Air Products and
Chemicals Inc., No. 649,2010, the Delaware Supreme Court held oral argument
in the expedited appeal by Airgas of the Court of Chancery's October 8, 2010
decision. (A summary of that Chancery decision, as well as posts on prior
Chancery decisions in this case, and commentary by leadings academics, are
available here.) The Supreme Court went en banc for this hearing
with the exception of Justice Jack B. Jacobs who did not participate in the
hearing; Superior Court Judge William L. Witham Jr. sat by designation.
Ted Mirvis of Wachtell Lipton Rosen & Katz argued for
Airgas. Gary Bornstein of Cravath Swaine & Moore LLP argued for Air
Products. The three appellate briefs of the parties can be downloaded in
the sequence they were filed, as follows: Opening; Answering and Reply. The audio recording of the oral argument
before the Supreme Court can be accessed here.
This report was submitted by Kevin F. Brady of Connolly
Bove Lodge & Hutz LLP
There were three issues raised by Airgas on
appeal. Airgas argued that the Court of Chancery erred in its decision
that: (i) DGCL § 141(d) does not provide that the term of three-class directors
on a Delaware staggered board is three years; (ii) the Bylaw was consistent
with the staggered board provision in Airgas' charter; and (iii) the enactment
of the Bylaw did not require a supermajority vote of the stockholders.
In arguing for reversal, Airgas stated that this is a
case about staggered boards and the statutory construction and policy behind
DGCL §§ 141(d) and 211. It also argued that the bylaw amendment proposed
by Air Products significantly undercut the permitted use of a staggered
board. Moreover, the bylaw amendment cannot be reconciled with DGCL §
211's requirement that Delaware corporations hold "annual" meetings when there
would be two shareholder meetings within four months of each other, with no
apparent business purpose for the second meeting other than to replace one
third of the board of directors. From a practical point of view, because
the Airgas fiscal year runs until March 31, if the bylaw is allowed to stand,
it would allow Airgas to hold two annual shareholder meetings in the same
Airgas relied on the 1960 Court of Chancery case Essential
Enterprises Corp. v. Automatic Steel Prods., 159 A.2d 288 (Del. Ch.
1960), where Chancellor Seitz held that under § 141(d) directors on three-class
staggered boards serve three-year terms. The Court found that "the statute says
that 'directors shall be chosen for a full term' and '[c]learly the 'full
term' visualized by the statute is a period of three years.'" Airgas also
argued that the legislative history of § 141(d), together with the statements
of numerous courts, practitioners, academics and the American Bar Association
model form and commentary for Delaware corporations, further reinforced the common
understanding that directors on staggered boards serve three year terms.
Air Products told the Court that the issue should be
framed differently because this is not a case about classified boards; it is a
case about annual meetings. Instead of looking to DGCL § 141(d) for
guidance, Air Products argued that Airgas should be looking at DGCL § 211
governing the timing of annual meetings. That section states that the date
of an annual meeting shall be "designated by or in the manner provided in
the bylaws". Pursuant to that section, Delaware corporations and their stockholders
have wide latitude to set their annual meeting schedule, subject only to the
specifically enumerated constraints appearing in § 211(c). In particular, an annual
meeting must be held prior to the expiration of "13 months after the
latest to occur of the organization of the corporation, its last annual meeting
or the last action by written consent to elect directors in lieu of an annual
meeting". Moreover, there are maximum time periods but no minimum time
periods and "annual" does not mean "separated by twelve
The Supreme Court took the matter under
advisement. Because this is an expedited appeal, it is anticipated that a
decision could be issued by November 15.
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Fox Rothschild LLP.