Section 225 of the Delaware General Corporation Law (the “DGCL”) provides a basis for a shareholder or director to petition the Court of Chancery to determine the proper board composition of a Delaware corporation, or to determine the officers of the company.

Delaware case law has generally acknowledged the limited scope of such actions, in many instances declining to consider any collateral issue that would lead the court beyond the narrow compass of the proceeding authorized by the statute.  Generally speaking, precedential cases have determined that such actions should be expeditious and narrowly tailored.

This narrow scope of Section 225 actions was affirmed in a 2011 decision of the Delaware Supreme Court, Genger v. TR Investors, LLC, No. 592, 2010 (Del. Supr., July 18, 2011), in which the Court determined which claims can properly be asserted through a Section 225 action to contest director elections, and confirmed that claims which are “collateral” to the purpose of a Section 225 action may not be adjudicated by the Delaware Court of Chancery in such summary proceedings.

The Court in Genger held: “In determining what claims are cognizable in a [Section] 225 action, the most important question that must be answered is whether the claims, if meritorious, would help the court decide the proper composition of the corporation’s board or management team.”  Agranoff v. Miller,1999 WL 219650, at *17 (Del. Ch. Apr. 12, 1999) (internal citations omitted), aff’d as modified,737 A.2d 530 (Table), 1999 WL 636634 (Del. 1999).

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.