Airgas, Inc. v. Air Products & Chemicals, Inc.
2010 Del. LEXIS 585
| Del. | 2010Background
- Airgas and Air Products are competitors in the industrial gas business; Air Products launched a tender offer for Airgas and Airgas rejected all bids as undervalued.
- Air Products waged a proxy contest at Airgas's annual meeting, nominating three directors to Airgas's staggered board.
- Airgas's charter and bylaws create a three-class, staggered board; changes require supermajority (67%) voting and cannot inconsist with the charter.
- Air Products proposed the January Bylaw to move Airgas's next annual meeting to January 2011, shortening terms of incumbents by eight months.
- Airgas shareholders elected Air Products nominees and adopted the January Bylaw at the September 15, 2010 meeting, despite a majority of voted shares supporting it.
- Delaware Court of Chancery upheld the January Bylaw; the Delaware Supreme Court reversed, holding the bylaw invalid as it shortens three-year terms.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the January Bylaw conflicts with Airgas Charter Article 5, §1 | Airgas argues the bylaw shortens three-year terms and is inconsistent with the Charter. | Air Products contends the bylaw aligns with Charter terms as interpreted and does not shorten terms. | The January Bylaw is inconsistent with the Charter and invalid. |
| Whether the Charter term language is ambiguous and requires extrinsic evidence | Charter language about 'the annual meeting in the third year following the year of their election' is ambiguous. | Terminology should be read to allow three-year terms as a matter of practice. | Charter language is ambiguous; extrinsic evidence shows three-year terms were intended. |
| Whether the extrinsic evidence proves three-year terms were intended under the Annual Meeting Term Alternative | Historical practice supports three-year terms under the Annual Meeting Term Alternative. | Practice is not controlling; the charter language must govern. | Extrinsic evidence supports three-year terms; the bylaw shortens them, thus invalid. |
| Whether a bylaw shortening the term constitutes a de facto removal requiring 67% stockholder vote | Shortening terms acts as removal without 67% consent. | The issue is a bylaw about meeting timing, not removal. | The bylaw operates as de facto removal without the requisite 67% consent; invalid. |
Key Cases Cited
- Essential Enterprises v. Automatic Steel Products, Inc., 159 A.2d 288 (Del.Ch. 1960) (bylaw removal conflicts with staggered three-year terms; full term is three years)
- Roven v. Cotter, 547 A.2d 603 (Del.Ch. 1988) (describes annual meeting term alternative as three-year term)
- Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150 (Del.Ch. 2005) (three-year terms; staggered board explained)
- Versata Enters. v. Selectica, Inc., 5 A.3d 586 (Del. 2010) (classification and term duration principles relevant to staggered boards)
- Carmody v. Toll Bros., Inc., 723 A.2d 1180 (Del.Ch. 1998) (discussion of charter vs. bylaw consistency and term interpretation)
- Insituform of N.Am., Inc. v. Chandler, 534 A.2d 257 (Del.Ch. 1987) (note on DGCL 141(d) and staggered boards)
- Centaur Partners, IV v. Nat'l Intergroup, Inc., 582 A.2d 923 (Del. 1990) (use of extrinsic evidence to interpret contract terms)