289 A.3d 631
Del.2023Background
- In 1997 Joseph D. Pike executed an Irrevocable Proxy appointing Daniel, Freeman, and Rush to vote 100 shares of N.D. Management, Inc. (Danco GP) (the "Proxy Shares"). An Addendum executed the same day bound Old MedApproach (the planned purchaser) and imposed a narrow "Transfer Restriction" among "MedApproach Persons."
- Old MedApproach (later reorganized) acquired 75% of Danco GP; that interest (the "Majority Shares") is now held by a Partnership that Mrs. Hawkins largely owns (88%). The Partnership executed an agreement to be bound by the Irrevocable Proxy when it acquired the shares.
- The Partnership dissolved in 2021; Mrs. Hawkins sought to buy the Majority Shares free of the Irrevocable Proxy during the winding up. Daniel asserted the Proxy runs with the Majority Shares and binds subsequent purchasers.
- The Court of Chancery held the Irrevocable Proxy does not run with the shares; the Addendum and its Transfer Restriction show the drafters intended the Proxy to bind only specified MedApproach-related transferees, not unaffiliated third parties.
- On appeal Daniel argued the Proxy’s plain language (especially its non-termination and assignment clauses) unambiguously binds successors; the Delaware Supreme Court affirmed, applying the rule that irrevocable proxies must clearly and unambiguously state they run with transferred shares and ambiguities are construed against the proxyholder.
Issues
| Issue | Hawkins' Argument | Daniel's Argument | Held |
|---|---|---|---|
| Does the Irrevocable Proxy "run with" the Majority Shares and bind subsequent unaffiliated purchasers? | The Proxy is ambiguous and, under Delaware law, any ambiguity is construed against the proxyholder; it does not plainly bind subsequent third‑party owners. | The Proxy’s language (including broad non‑termination language and the assignment clause) shows the parties intended it to survive a sale and bind successors. | Held: Proxy does not run with the shares; ambiguity and the Addendum/definitions defeat Daniel’s claim. |
| Does the Non‑Termination Provision ("not be terminated by any act of the Stockholder or by any other event") mean a sale cannot terminate the Proxy? | The provision should be read narrowly in context; it prevents the Stockholder from unilaterally revoking while still owning the shares, not to bind later transferees. | The catch‑all wording encompasses a sale and therefore precludes termination by transfer. | Held: The provision is ambiguous; read against proxyholder and in context it does not unambiguously cover a sale to a third party. |
| Does the Addendum’s existence and Transfer Restriction indicate the Proxy was intended to bind subsequent purchasers? | The Addendum shows parties knew the Proxy would not otherwise bind an outside purchaser and therefore specifically bound Old MedApproach and limited transfers to MedApproach Persons. | The Addendum was merely redundant or "belt‑and‑suspenders" and does not undermine the Proxy’s plain reach. | Held: The Addendum demonstrates the drafters did not assume the Proxy ran with the shares; its Transfer Restriction applies only among MedApproach Persons and not to unaffiliated third parties. |
| Does the Assignment/"Bound Parties" clause ("inure to the benefit of Stockholder and the Holders and their ... permitted assigns") bind permitted assigns of the Stockholder (i.e., transferees)? | The clause is ambiguous and, given structure and grammar, more naturally binds only assigns of the Holders; it does not unambiguously bind Stockholder transferees. | The phrase "permitted assigns" includes transferees and therefore binds subsequent owners. | Held: "Permitted assigns" does not clearly include transferees of the Stockholder; grammar, structure and differing term usage support reading it not to bind purchasers. |
Key Cases Cited
- TR Invs., LLC v. Genger, 26 A.3d 180 (Del. 2011) (proxy must plainly indicate it runs with shares to bind subsequent owners)
- Stream TV Networks, Inc. v. SeeCubic, Inc., 279 A.3d 323 (Del. 2022) (plain‑meaning contract interpretation and limits on importing external default rules)
- Crown EMAK Partners LLC v. Kurz, 992 A.2d 377 (Del. 2010) (scrutiny of arrangements that decouple voting and economic interests)
- Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (deference to informed, disinterested stockholder vote and policy against judicial second‑guessing)
- Eliason v. Englehart, 733 A.2d 944 (Del. 1999) (a proxy is evidence of agency; interpret proxies narrowly)
- In re Giant Portland Cement Co., 21 A.2d 697 (Del. Ch. 1941) (historic principle that voting rights are incident to legal ownership)