The Delaware Court of Chancery’s ruling in Pontiac General Employees Retirement System v. Ballantine, C.A. No. 9789-VCL (Del. Ch. Oct. 14, 2014) (Transcript), is the most recent statement on so-called “dead hand” proxy puts—the provisions in credit agreements that trigger an acceleration of the borrower’s indebtedness upon a change in a majority of its board within a specified timeframe. (An ordinary “proxy put” provides that the incumbent board may approve any non-incumbent nominee as a “continuing director” to ensure that the nominee will not be counted toward whether a change of control has occurred, while a “dead hand” proxy put provides that any person who has been nominated or elected as a result of an actual or threatened proxy contest will count toward a change of control, whether or not approved by the board.) Although the ruling is perhaps most notable as it relates to aiding and abetting claims against banks that negotiate for these provisions, it also raises interesting issues on the question of ripeness. The Delaware Supreme Court recently explained in XL Specialty Insurance v. WMI Liquidating Trust, 93 A.3d 1208, 1217-18 (Del. 2014) (footnotes omitted), that “generally, a dispute will be deemed ripe if ‘litigation sooner or later appears to be unavoidable and where the material facts are static.’ Conversely, a dispute will be deemed not ripe where the claim is based on ‘uncertain and contingent events’ that may not occur, or where ‘future events may obviate the need’ for judicial intervention.” .
Notably, the stockholder plaintiff in Ballantine had not run its own slate of directors at any prior meeting of stockholders of Healthways Inc., the nominal defendant in Ballantine. Additionally, although the court noted that Healthways “faced, and continues to face, the risk of a proxy contest,” there was no clear indication from the transcript that the plaintiff or any particular insurgent or group was actively seeking to run a slate of nominees at Healthways’ upcoming annual meeting. Nevertheless, the plaintiff’s challenge to the proxy-put provision in Healthways’ credit agreement survived a motion to dismiss in the face of a ripeness defense.
