59 A.3d 437
Del. Ch.2012Background
- Hockessin Community Center is a 501(c)(3) nonprofit; Board composition disputed between two factions (the Board and the Center).
- Disputed Directors (DiMarco, Nichols, Swift, Hughes) joined between 2009–2010; others (Fleming, Henderson, Lucas, Woolford) purportedly added in 2011.
- In 2011–2012 Hunt (via HWI Partners) pursued a sale/strategic deal involving the Center’s assets, confidentiality, and a potential new governance arrangement.
- April 2012 documents (April Agreement, January Amendment) purport to shift control to Hunt’s coalition and the Hockessin Heritage Foundation, with Board-reconstitution provisions.
- Board initially approved a Letter of Intent (Sept. 2011) that commentators describe as nonbinding and limited in its scope; no closing occurred.
- Center filed a Section 225 action in 2012 to determine the rightful de jure Board and related corporate governance issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Disputed Directors were validly removed or disqualified | Center contends removal/right to remove valid | Disputed Directors argue no proper removal occurred and bylaws allowed removal | Director removal invalid; Board not properly authorized to remove |
| Whether the April Agreement and director-removal provisions complied with DGCL 141(k) | Agreement authorized removal of directors | Removals inconsistent with Section 141(k) and lacked proper authorization | Director-removal right invalid under DGCL 141(k) as applied to Center |
| Whether the purported resignations were validly delivered and accepted | Resignations relied on misrepresentations about transactions | Directors did not resign in a valid, voluntary, properly communicated manner | Resignations invalid; no effective resignations |
| Whether the May 24 and June 21 meetings were valid despite earlier irregularities | Meetings valid due to board action and quorum | Some actions tainted by improper calling/appointment | May 24 meeting valid; June 21 actions largely valid; some actions void |
| Whether Disputed Directors are de facto directors or de jure | Disputed Directors acted as directors in good faith | Irregular appointment theater; de facto status only | Disputed Directors are de facto directors; valid to participate with board powers |
Key Cases Cited
- Prickett v. Am. Steel & Pump Corp., 253 A.2d 86 (Del.Ch. 1969) (de facto director status and cure by proper election)
- Kurz v. Holbrook, 989 A.2d 140 (Del.Ch. 2010) (limits on directors removing other directors)
- Crown, EMAK P’rs, LLC v. Kurz, 992 A.2d 377 (Del.2010) (removal rights and due process limits)
- In re IAC/InterActive Corp., 948 A.2d 471 (Del.Ch. 2008) (Section 225 burden and de jure director determination)