The Delaware Supreme Court recently affirmed the Court of Chancery’s bench ruling in the coordinated Fox & Snap actions, which held that both companies had validly amended their corporate charters—without a separate class vote—to include officer exculpation provisions. In re Fox Corp., Nos. 120 & 121, 2023 (Consolidated) (Del. Jan. 25, 2024).

The Court of Chancery’s Bench Ruling

Adhering to the teachings of Dickey Clay and Orban, Vice Chancellor Laster rejected the stockholder-plaintiffs' arguments and held that the disputed charter amendments did not require a class vote under Section 242(b)(2), because the stockholder’s right to sue—i.e., the right being curtailed by the amendments—was not expressly set forth in either company’s charter.  See generally Elec. Workers Pension Fund, Local 103, I.B.E.W. v. Fox Corp., C.A. No. 2022-1007-JTL (Del. Ch. Mar. 29, 2023) (TRANSCRIPT) (granting defendants' motions for summary judgment); see also 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). Vice Chancellor’s bench ruling was analyzed in an earlier post.

The Supreme Court’s Opinion

On appeal, the plaintiffs argued that the Court of Chancery erred by: “(1) rejecting the [stockholders’] plain-meaning argument that the word ‘powers’ in Section 242(b)(2) includes the ability to sue officers for damages for breaching their duty of care; (2) holding that ‘fealty’ to Dickey Clay and Orban dictated the outcome; and (3) considering long-standing expectations of commentators and practitioners to support its decision.” 

The stockholders’ first argument was the focus of the Supreme Court’s opinion, which swiftly dispensed with the latter two. In sum, the Supreme Court rejected the stockholders’ plain-meaning argument, reasoning that it “ignores the context in which the word ‘powers’ is used [within Section 242(b)(2)] and how Section 242(b)(2) interacts with other sections of the DGCL employing the same words,” including Sections 102(a)(4) and 151(a). When read in context, “[t]he word ‘powers’ in Section 242(b)(2) refers to specific class powers … made express in the corporate charter … and not to general powers incidental to stock ownership.”

It should be noted, however, that a right or power need not be expressly stated in the charter itself in order to be “expressed” for purposed of Section 242(b)(2). Because Section 394 provides that the DGCL is incorporated into every Delaware corporation’s charter, then any “rights incorporated through the DGCL’s default provisions are also expressed in the charter for purposes of Section 242(b)(2).”

As to the stockholders’ latter two arguments, the Supreme Court observed that: (i) the Court of Chancery faithfully applied precedent (and noted that the stockholders were not seeking to overturn Dickey Clay or Orban); and (ii) “the Court of Chancery did not make practitioner experience central to its ruling.”