In the recent decision of Jay Frechter v. Cryo-Cell International, Inc., Civil Action No. 11915-VCG (Del. Ch. Oct. 7, 2016), the Court of Chancery granted a mootness fee in connection with a lawsuit brought by a stockholder challenging a bylaw provision. The bylaw provision at issue indicated that directors could be removed “for cause” at a “special meeting” of stockholders. The plaintiff asserted that under Section 141(k) of the Delaware General Corporation Law, stockholders have the right to remove directors without cause, and thus the provision was unlawful.
After the Plaintiff moved for summary judgment, the Company amended its bylaw to remove the language complained of, mooting the action. The Court found that the provision at issue was “misleading to stockholders and could have a chilling effect on the exercise of their franchise under Section 141, because providing a procedure to remove directors for cause (and remaining silent as to removal without cause) could indicate to a reasonable stockholder that cause was a requisite for removal.”
The Court considered the Sugarland factors and found that a mootness fee of $50,000 for plaintiff’s counsel was warranted.
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at email@example.com.