Delaware courts have consistently recognized that disputes challenging corporate defensive measures are ripe for review when the defensive measures have a substantial deterrent effect on the ability of stockholders to exercise their rights. For example, in Moran v. Household International, 490 A.2d 1059, 1072 (Del. Ch. 1985), a corporation’s implementation of a shareholder rights plan, which deterred the ability of stockholders to receive takeover proposals and engage in a proxy fight for control of the corporation, was ripe for review. Similarly, in KLM Royal Dutch Airlines v. Checchi, 698 A.2d 380, 384 (Del. Ch. 1997), a corporation’s implementation of a shareholder rights plan or poison pill, which interfered with a stockholder’s contractual right to exercise a stock option, was ripe for review. More recently, in Pontiac General Employees Retirement System v. Ballantine, C.A. No. 9789-VCL, at *72-77 (Del. Ch. October 14, 2014) (Transcript Op.) (Laster, V.C.), the board’s implementation of a proxy put, which gave noteholders a right to accelerate payment of their debt if stockholders removed and replaced the majority of the corporation’s board, had a deterrent effect on the stockholders’ ability to conduct a proxy contest, and was thus ripe for review. In each of these cases, the key factor that the challenge was ripe for review was the “deterrent effect” of the defensive measure on the ability of stockholders to exercise their rights.
But, a hypothetical proxy contest strategy that was proposed by stockholders to gain control of an entire board, but which was not pursued, and which did not deter other stockholders from exercising their stockholder rights to seek control of the board through alternative means, was not ripe for review. In its recent decision, In re Allergan Stockholder Litigation, C.A. No. 9609-CB (Del. Ch. November 7, 2014) (Bouchard, C.), the Court of Chancery denied the plaintiff stockholders’ motion for summary judgment, which sought a declaration that a “Similar Item” limitation in a special stockholder meeting bylaw did not prohibit a stockholder request for a special meeting to remove and elect the entire board (as long as the proposed board members were not nominees up for election in the preceding year). In Allergan, the court held the plaintiffs’ challenge to the bylaw was not ripe because the plaintiffs were seeking an advisory opinion regarding the interpretation of the “Similar Item” limitation to support a hypothetical proxy contest strategy to remove and replace the entire Allergan board that was not pursued by any stockholder, and did not deter other stockholders from exercising their right to seek control of the board, albeit through an alternate proxy contest strategy.
