It goes without saying that a corporation’s bylaws must comply with the applicable provisions of the Delaware General Corporation Law (“DGCL”).  The recent decision rendered by Vice Chancellor Glasscock, Fretchter v. Zier, et al., C.A. No. 12038-VCG (Del. Ch. Jan. 24, 2017) considered whether a corporate bylaw, requiring a two-thirds stockholder vote to remove a director, complied with the DGCL.

Among other things, plaintiff brought a declaratory judgment action that the removal provision of the bylaws violates Section 141(k) of the DGCL, and moved for summary judgment on the count.  Defendants responded with a motion to dismiss the complaint.

The Court granted plaintiff’s motion for summary judgment, finding that the bylaw ran afoul of 8 Del. C. § 141(k), under which directors may be removed by a majority vote of corporate shares.  Notably, the decision explained that the matter solely analyzed the bylaws, with no consideration of the corporation’s certificate of incorporation.

The Court noted that Section 141(k) of the DGCL provides that “[a]ny director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors” subject to two exceptions not pertinent here.  Vice Chancellor Glasscock also rejected defendants’ assertion that Section 216 of the DGCL authorized the bylaw, and disagreed with their assertion that Section 141(k) is permissive.

Accordingly, the Court held that “Section 141(k) unambiguously confers on a majority the power to remove directors, and the contrary provision in the Company bylaws is unlawful.”

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.