Delaware Supreme Court Hears Argument on Airgas' Appeal Regarding Bylaw Amendment and Stockholders' Meeting

Delaware Supreme Court Hears Argument on Airgas' Appeal Regarding Bylaw Amendment and Stockholders' Meeting

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 fiscal year. 

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 months."

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.