On March 29, 2023, Vice Chancellor Laster issued a bench ruling holding that no class vote was required to approve charter amendments adding exculpation provisions for corporate officers. This bench ruling from the Delaware Court of Chancery granted the defendants' motions for summary judgment in two related actions: Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Fox Corporation, 2022-1007-JTL (Del. Ch.) (Fox) & In re Snap Inc. Section 242 Litigation, 2022-1032-JTL (Del. Ch.) (Snap).  

By way of background, 8 Del. C. § 102(b)(7) (Section 102(b)(7)) was recently amended (effective as of August 1, 2022) to permit Delaware corporations to include provisions in their charter that exculpate officers from personal liability for monetary damages for, among other things, duty of care violations.  Naturally, Delaware corporations (including Fox Corporation and Snap, Inc.) have responded by amending their charters to exculpate their officers from personal liability to the fullest extent permitted under the new and improved Section 102(b)(7).

According to the stockholders in Fox and Snap, a class vote was required to validly approve the disputed  amendments, because they had the effect of curtailing one of the three fundamental rights of stockholders—i.e., the right to sue. More specifically, the stockholders argued that the amendments fell within the scope of 8 Del. C. § 242(b)(2) (Section 242(b)(2)), which requires a class vote for any charter amendment that “would alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely.”

Although the stockholders’ arguments were faithful to the plain language of Section 242(b)(2), Vice Chancellor Laster explained that his decision to grant the defendants’ motions for summary judgment was controlled by two precedents: Hartford Accident & Indemnity Co. v. W.S. Dickey Clay Mfg. Co., 24 A.2d 315 (Del. 1942) (Dickey Clay) & Orban v. Field, 1993 Del. Ch. LEXIS 277 (Dec. 30, 1993) (Orban). According to the bench ruling, absent the “interpretive gloss” afforded by these precedents, the stockholders’ arguments would have been much stronger.  

Nevertheless, Vice Chancellor Laster explained—after detailing the holdings and reasoning in Dickey Clay and Orban—that Delaware courts have not interpreted Section 242(b)(2) as extending to any rights and powers not expressly set forth in the (to-be-amended) charter. Accordingly, because the stockholders’ right to sue was not expressly set forth in the charters before the amendments, no class vote was required.