On December 27, 2022, Vice Chancellor Morgan T. Zurn of the Delaware Courtroom of Chancery considerably granted plaintiff’s movement for abstract judgment in an motion looking for attorneys’ charges. Garfield v. Boxed, Inc., No. 2022-0132-MTZ (Del. Ch. Dec. 27, 2022). Plaintiff, a stockholder of defendant Seven Oaks Acquisition Corp., a particular function acquisition firm (the “SPAC”), made a requirement on the board difficult the construction of stockholder votes on proposed constitution amendments relating to the issuance of shares in reference to a merger. The SPAC made the change demanded by plaintiff and consummated the deal. Nonetheless, defendant opposed the attorneys’ charges award, contending that the beforehand contemplated voting construction had already been legally compliant. The Courtroom held that plaintiff had appropriately decided that the contemplated voting construction would have been inconsistent with Delaware legislation. The Courtroom thus awarded attorneys’ charges as a result of “[b]y taking the [SPAC] off a path that violated [Delaware law] and the stockholder franchise, [p]laintiff conferred a considerable profit.”
The SPAC had Class A typical stockholders and Class B frequent stockholders. In reference to an anticipated merger, the SPAC proposed constitution amendments that will have elevated the variety of Class A licensed shares and altered the vote required to vary the variety of shares sooner or later. The SPAC deliberate to have all frequent stockholders vote on the transaction, in addition to on the proposed constitution amendments and different proposals.
Previous to the votes, plaintiff despatched a pre-suit demand letter to the SPAC’s board contending that the contemplated vote would violate Part 242(b) of the Delaware Common Company Regulation (“DGCL”). That statute offers that “[t]he holders of the excellent shares of a category shall be entitled to vote as a category upon a proposed modification … if the modification would enhance or lower the combination variety of licensed shares of such class … or alter or change the powers, preferences, or particular rights of the shares of such class in order to have an effect on them adversely.” Plaintiff demanded a vote for the Class A stockholders as a “standalone class, as an alternative of with the [C]lass B frequent stockholders.”
In response, the SPAC amended the merger settlement to implement the voting changes demanded by plaintiff and the transaction closed. Defendant nonetheless opposed the price request, arguing that standalone votes weren’t mandatory beneath Part 242(b) as a result of the “Class A” and “Class B” frequent inventory issued beneath the SPAC’s unique certificates of incorporation have been a part of one class of frequent inventory with two sequence.
Explaining that Delaware courts “apply the final guidelines of contract interpretation to disputes over the which means of constitution provisions,” the Courtroom held that the Class A and Class B shares have been two lessons of frequent inventory reasonably than merely two sequence of the identical class. The Courtroom highlighted that the constitution used the phrase “class”—and never the phrase “sequence”—to explain these shares. The Courtroom additionally famous that DGCL Part 102(a)(4) prescribes that “[i]f the company can have authority to subject a couple of class of shares, then the certificates should set forth the variety of shares of all lessons and of every class and whether or not the shares are par or no-par.” The Courtroom discovered that the constitution’s itemizing of the variety of licensed shares for every of the Class A and Class B frequent inventory, together with their par worth, appeared “designed to authorize … statutorily compliant ‘lessons’.” The Courtroom added that, in contrast, the constitution expressly offered authority to the board to subject “a number of sequence of Most popular Inventory.” Due to this fact, the Courtroom concluded, “[r]ead as a complete and along with the DGCL,” the constitution “granted the [SPAC] authority to subject … solely lessons of frequent inventory—not sequence.”
Accordingly, the Courtroom decided that the demand “conferred a significant profit on the [SPAC] and its stockholders by addressing the statutory issues with the proposed voting construction for the [c]hallenged [a]mendments.” The Courtroom defined that, if the share enhance modification vote had proceeded with out correction, the brand new shares “would have been invalidly issued,” and since the transaction was conditioned on the constitution amendments, “the merger itself would have been on shaky floor.” In flip, that “may have referred to as into query subsequent acts by the surviving company.” The Courtroom concluded that avoiding these penalties have been all “materials advantages.” The Courtroom added that “preventive motion is as helpful as corrective motion, if no more,” as “diffusing a ticking time bomb could be extra worthwhile than cleansing up shrapnel.”
The Courtroom, subsequently, awarded plaintiff attorneys’ charges of $850,000 beneath the company profit doctrine. In reaching that conclusion, the Courtroom held that crucial issue is the profit conferred, noting that it gave “no weight” to the hours expended.
The Courtroom, nevertheless, declined to award a premium. Plaintiff had sought such a premium, asserting that this case was “the primary of a number of equivalent however unrelated actions.” The Courtroom defined, “[w]ith company profit as my north star, and cognizant of sample and follow earlier than this Courtroom, I see no principled motive to saddle the unfortunate first firm to have its price award set by the Courtroom with charges that exceed the profit that firm acquired.”
