Kallick v. Sandridge Energy, Inc.
2013 Del. Ch. LEXIS 63
| Del. Ch. | 2013Background
- SandRidge Energy faced a high-stakes proxy contest as hedge fund TPG-Axon sought to destagger the board, remove incumbents, and install its own slate.
- TPG contends SandRidge underperformed for years and that CEO Ward was overcompensated, warranting a board shake-up and asset-strategy review.
- The incumbent board warned that electing TPG could trigger the Proxy Put, forcing a $4.3 billion debt repurchase, harming creditors and liquidity.
- Kallick, a SandRidge stockholder supporting TPG, sued to require the board to approve the TPG slate for purposes of the Proxy Put, arguing fiduciary duties require neutrality absent material risk to creditors.
- Throughout litigation, the board shifted its public position on the Proxy Put and delayed decisions on approving the TPG slate, creating concern about fair play in the election.
- The court applied Unocal-style review to assess whether the board acted reasonably and in good faith, ultimately granting narrowly tailored injunctive relief to Kallick.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the board breach its fiduciary duties by refusing to approve the TPG slate for Proxy Put purposes? | Kallick: incumbents lack basis to deny approval; no specific threat from TPG slate to creditors. | SandRidge: board must defend creditors; approval could jeopardize liquidity or trigger leverage risk. | Yes; likely breach; non-approval prejudices stockholders and undermines fiduciary duties. |
| What standard of review governs the board’s decision on approving the dissident slate? | Kallick: Unocal-based heightened scrutiny applies due to defensive Proxy Put impact on elections. | SandRidge: business judgment rule should apply with minimal interference. | Unocal-style review applied; heightened scrutiny required. |
| Does the presence of the Proxy Put justify withholding approval, given creditor protections? | Approval would not threaten creditors; no substantial risk shown by incumbents. | Proxy Put provides creditor protection and changes the voting dynamic, potentially harming the company. | No; failure to approve without a concrete, non-pretextual threat to creditors improper. |
| Should the court grant injunctive relief to halt consent revocations and compel approval pending decision on the TPG slate? | Immediate relief is warranted to protect stockholders’ right to vote uncoerced. | No irreparable harm; market conditions reduce risk of harm from delay. | Granted; narrowed injunction preventing further revocations and actions hindering solicitation until approval or full explanation. |
Key Cases Cited
- Amylin Pharms., Inc. v. San Antonio Fire & Police Pension Fund, 983 A.2d 304 (Del. Ch. 2009) (directors must act in good faith to protect stockholders' right to vote against entrenching measures)
- Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988) (shareholder franchise is core; heightened scrutiny when voting rights are affected)
- Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985) (authorizes intermediate, reasonableness review of defensive action by directors)
- Hills Stores Co. v. Bozic, 769 A.2d 88 (Del. Ch. 2000) (distinguishes severance-contract concerns from credit agreements in proxy contexts)
- Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437 (Del. 1971) (principle that improper motives undermine director action)
- Mercier v. Inter-Tel (Del.), Inc., 929 A.2d 786 (Del. Ch. 2007) (duty considerations when evaluating protective contractual provisions)