Stephen Gunderson v. The Trade Desk, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

STEPHEN GUNDERSON, )
)
Plaintiff, )
)
v. ) C.A. No. 2024-1029-PAF
)
THE TRADE DESK, INC., JEFF GREEN, )
LISE BUYER, ANDREA CUNNINGHAM, )
KATHRYN FALBERG, GOKUL RAJARAM, )
DAVID WELLS, and SAMANTHA )
JACOBSON, )
)
Defendants. )

OPINION

Date Submitted: October 30, 2024
Date Decided: November 6, 2024
Date Corrected: November 8, 2024

Gregory V. Varallo, Andrew E. Blumberg, Daniel E. Meyer, BERNSTEIN
LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Christopher
J. Orrico, Shiva Mohan, BERNSTEIN LITOWITZ BERGER & GROSSMANN
LLP, New York, New York; Jeremy S. Friedman, David F.E. Tejtel, Alexander M.
Krischik, David A. Rosenfeld, FRIEDMAN OSTER & TEJTEL PLLC, Bedford
Hills, New York; Joel Fleming, Lauren Godles Milgroom, EQUITY LITIGATION
GROUP LLP, Boston, Massachusetts; D. Seamus Kaskela, Adrienne Bell,
KASKELA LAW LLC, Newtown Square, Pennsylvania; Attorneys for Plaintiff
Stephen Gunderson.

Brad D. Sorrels, Andrew D. Cordo, Nora M. Crawford, Lauren G. DeBona,
Jacqueline G. Conner, WILSON SONSINI GOODRICH & ROSATI P.C.,
Wilmington, Delaware; Colleen C. Smith, LATHAM & WATKINS LLP, San
Diego, California; Blair Connelly, Zachary L. Rowen, Thomas Giblin, LATHAM &
WATKINS LLP, New York, New York; Ryan A. Walsh, LATHAM & WATKINS
LLP, Costa Mesa, California; David J. Berger, WILSON SONSINI GOODRICH &
ROSATI P.C., Palo Alto, California; Attorneys for Defendants The Trade Desk, Inc,
Jeff Green, Lise Buyer, Andrea Cunningham, Kathryn Falberg, Gokul Rajaram,
David Wells, and Samantha Jacobson.

FIORAVANTI, Vice Chancellor
The board of directors of a Delaware corporation has recommended that the

corporation reincorporate as a Nevada corporation. The board has proposed to effect

the reincorporation through a conversion under Section 266 of the Delaware General

Corporation Law (the “DGCL”). Under Section 266, the conversion must be

approved by a majority of the outstanding shares of stock of the corporation entitled

to vote upon the proposal. The corporation’s chief executive officer controls

approximately 49% of the outstanding voting power. Thus, the conversion is almost

certain to receive the requisite majority vote under the statute.

Article X of the corporation’s certificate of incorporation, however, requires

the approval of 66 2/3% of the outstanding voting power of the corporation’s stock,

voting as a single class, “to amend or repeal, or adopt any provision” of the certificate

inconsistent with certain enumerated articles of the certificate. There is no dispute

that upon conversion, the Nevada corporation will possess a certificate of

incorporation that is inconsistent with some of the enumerated articles.

A stockholder of the corporation alleges in his complaint that the conversion

is subject to the higher voting requirement in Article X. This is so, says the Plaintiff,

because the conversion will result in the amendment and repeal of the certificate and

the adoption of provisions inconsistent with the articles enumerated in Article X.

The Plaintiff seeks an order enjoining the corporation from proceeding with the

conversion unless the corporation and the directors apply the supermajority vote
threshold in Article X and make additional disclosures about the required vote

threshold to the stockholders.

The Defendants, relying on the doctrine of independent legal significance and

a line of cases from this court and the Delaware Supreme Court over the past 35

years, argue that the conversion is not subject to the supermajority vote requirement

in Article X. For the supermajority vote requirement to apply in this instance,

according to the Defendants, additional language is required to specify Article X’s

applicability outside of Section 242 of the DGCL, which governs amendments to the

certificate. Here, Article X does not contain that additional language and therefore,

according to the Defendants, it does not apply in this instance.

Both sides have moved for summary judgment in their favor on these specific

claims, and the court has considered the motions on an expedited basis. At oral

argument, Plaintiff conceded that if the Defendants had chosen to accomplish the

reincorporation through a merger under another section of the DGCL, then approval

would not require a supermajority vote under Article X. This concession, in the

court’s view, is fatal to many of the Plaintiff’s arguments. But even without

Plaintiff’s having made that concession, the court concludes that the heightened vote

threshold under Article X does not apply to the conversion.

Accordingly, the court grants the Defendants’ motion and denies the Plaintiff’s

motion. Given that the proposed vote on the conversion is scheduled for November

2
14, 2024, the court will enter a partial final judgment under Court of Chancery Rule

54(b), enabling the Plaintiff to seek an expedited appeal if he is so inclined.

I. BACKGROUND
The following undisputed facts are pertinent to the issue before the court.

A. The Certificate of Incorporation

The Trade Desk, Inc. (“Trade Desk” or the “Company”) was formed in 2009

as a Delaware corporation. 1 In September 2016, the Company went public in an

initial public offering (the “IPO”). 2 In the IPO, the Company created a dual-class

stock structure.3 The Company’s Class A common stock is publicly traded and

entitles the holder to one vote per share. 4 The Company’s Class B stock, which is

not publicly traded, entitles the holder ten votes per share.5

Jeff Green, the Company’s co-founder, current director, and Chief Executive

Officer, owns over 97% of the Class B common stock.6 Green’s combined

ownership of Class A and Class B common stock gives him approximately 49% of

1
Dkt. 21 ¶ 17 (“Compl.”); Dkt. 17 Ex. A at 1 (“Certificate”).
2
Compl. ¶ 18.
3
Id.; The Trade Desk, Inc., Schedule 14A (Oct. 27, 2020) at 12. “The court may take
judicial notice of facts publicly available in filings with the SEC.” Omnicare, Inc. v. NCS
Healthcare, Inc., 809 A.2d 1163, 1167 n.3 (Del. Ch. 2002) (citing In re Santa Fe Pac.
Corp. S’holder Litig., 669 A.2d 59, 69–70 (Del. 1995)).
4
Compl. ¶ 18.
5
Id.
6
Id. ¶¶ 10, 17, 19.

3
the Company’s voting power.7 The Company acknowledges that Green is its

controlling stockholder. 8

In connection with its IPO, the Company amended its certificate of

incorporation (the “Certificate”).9 Among the amendments was the addition of

Article X. 10 As discussed and analyzed later in this opinion, Article X requires “the

affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%)

of the voting power of the outstanding shares of stock of the Corporation entitled to

vote thereon, voting together as a single class,” “to amend or repeal, or adopt any

provision of this Restated Certificate inconsistent with, ARTICLE VI, ARTICLE

VII, ARTICLE VIII, ARTICLE IX or this ARTICLE X of this Restated

Certificate.” 11 Plaintiff defines Articles VI through X of the Certificate as the

“Protected Provisions.” For ease of reference, this opinion adopts that definition.

7
Id. ¶ 19.
8
Dkt. 17 Ex. D at 10 (The Trade Desk, Inc. Definitive Proxy Statement, dated October 3,
2024) (“Proxy”).
9
Compl. ¶ 18.
10
Id. ¶¶ 20–21.
11
Certificate Art. X. In 2020, the certificate adopted in connection with the Company’s
IPO was amended and restated, but Article X was unchanged. See Compl. ¶ 21 n.9.

4
B. The Proposed Conversion
On September 20, 2024, the Company’s Board of Directors (the “Board”)

approved a resolution to reincorporate Trade Desk as a Nevada corporation.12 The

vehicle by which the Board proposes to transport the Company from Delaware to

Nevada is Section 266 of the DGCL (the “Conversion”). 13 Under Section 266, a

conversion requires the approval of a majority of the voting power of the outstanding

stock entitled to vote, absent a greater requirement in the certificate.14

On October 3, 2024, the Company filed notice of a special meeting to be held

on November 14, 2024 (the “Special Meeting”). 15 The definitive proxy statement

(the “Proxy”) that accompanied the meeting notice explains that, upon stockholder

approval, the Company intends to file a certificate of conversion and, thereby,

convert the Company from a Delaware corporation governed by the Certificate into

a Nevada corporation governed by a separate instrument (the “Nevada

Certificate”).16

12
Compl. ¶ 29.
13
Proxy at 8.
14
8 Del. C. § 266(b).
15
Compl. ¶ 5.
16
Proxy at 8. According to the Proxy, the decision to reincorporate was “in response to a
number of factors, including developments in the competitive and regulatory landscape in
which [the Company] compete[s] and views regarding the legal landscape in Delaware.”
Id. at 9. The Company and Board contend that “[t]he increasingly litigious environment

5
According to the Proxy, the Conversion requires the approval of “a majority

of the voting power of the shares outstanding and entitled to vote.” 17

C. Procedural History

On October 4, 2024, Plaintiff Stephen Gunderson filed this action against the

Company’s directors (the “Director Defendants”) and the Company itself. 18 Plaintiff

alleges that Article X of the Certificate requires the approval of the holders of 66

2/3% of the voting power of the outstanding shares of stock of the corporation

entitled to vote on the Conversion (a “Supermajority”). Plaintiff argues that the

Conversion will amend and repeal the Certificate and adopt provisions inconsistent

with the Protected Provisions, thus requiring a Supermajority vote. Consequently,

according to Plaintiff, the Company and Board have breached the Certificate and

have necessarily breached their fiduciary duties by failing to disclose that approval

of the Conversion requires a Supermajority vote.

facing corporations with controlling stockholders has created unpredictability in decision-
making and has started to impede [the Company’s] ability to act quickly.” Id. at 11.
Specifically, the Defendants point to two recent stockholder actions in this court
challenging decisions of the Board that benefited Green. In one case, this court granted a
motion to dismiss claims against Green and the Board concerning an amendment to the
Company’s certificate of incorporation that had the effect of extending Green’s voting
control. See generally City Pension Fund for Firefighters & Police Officers in the City of
Miami v. The Trade Desk, Inc., 2022 WL 3009959 (Del. Ch. July 29, 2022). The second
action challenges Green’s compensation. Motions to dismiss that complaint are awaiting
decision. See In re The Trade Desk, Inc. Deriv. Litig., 2022-0461-PAF (Del. Ch.).
17
Proxy at 4; see also id. at 40.
18
Dkt. 1.

6
Plaintiff filed motions to expedite and for a preliminary injunction with his

complaint.19 In briefing the motion to expedite, both sides agreed that the issue was

one solely of law. Accordingly, the court granted the motion to expedite and directed

the parties to file and brief cross-motions for summary judgment.20 The parties filed

and briefed cross-motions on Counts I and II of the Amended Complaint (the “Cross-

Motions”),21 and the court heard argument on the Cross-Motions on October 30,

2024. 22

II. ANALYSIS
The sole issue before the court is whether a Supermajority stockholder vote is

required to approve the Conversion.23 Plaintiff argues that Article X requires

Supermajority approval. Defendant argues that Article X does not apply to the

19
Id.
20
Dkt. 13.
21
Dkt. 17 (“Pl.’s Opening Br.”); Dkt. 20 (“Defs.’ Answering & Opening Br.”); Dkt. 24
(“Pl.’s Reply & Answering Br.”); Dkt. 25 (“Defs.’ Reply Br.”).
22
Dkt. 30. On October 24, 2024, while the parties were briefing the Cross-Motions, the
Plaintiff filed his Amended Complaint, adding two counts challenging the substantive
fairness of the Conversion, for the purpose of preserving those claims. See Dkt. 21. This
opinion does not address these additional counts.
23
It is well established that “director action is ‘twice-tested,’ first for legal authorization,
and second by equity.” In re Invs. Bancorp, Inc. S’holder Litig., 177 A.3d 1208, 1222
(Del. 2017) (citing A. A. Berle, Jr., Corporate Powers as Powers in Trust, 44 Harv. L. Rev.
1049, 1049 (1931)) (additional citation omitted). The Cross-Motions focus on the first
test—legal authorization. See Pl.’s Reply & Answering Br. 7 (“The Court is, thus, asked
to answer one question: does the [Conversion] trigger Article X’s Supermajority Approval
Requirement?”). Plaintiff has sought to preserve his ability to challenge the substantive
fairness of the Conversion under equity at a later stage. See supra note 22.

7
Conversion and that, therefore, only majority approval under Section 266 of the

DGCL is required.

A. Standards of Review
1. Standard for Summary Judgment

Under Court of Chancery Rule 56, summary judgment may be granted if

“there is no genuine issue as to any material fact” and “the moving party is entitled

to a judgment as a matter of law.” Ct. Ch. R. 56(c). Where, as here, the parties have

filed cross-motions for summary judgment and “have not presented argument to the

Court that there is an issue of fact material to the disposition of either motion, the

Court shall deem the motions to be the equivalent of a stipulation for decision on the

merits based on the record submitted with the motions.” Ct. Ch. R. 56(h).

2. Standard for a Permanent Injunction
The two counts of the Amended Complaint at issue in the Cross-Motions are

intertwined. Count I alleges that the Company is breaching the Certificate by

effecting the Conversion without the required vote under Article X. Count II alleges

the Director Defendants have breached their fiduciary duties by failing to disclose

that the Conversion requires a Supermajority vote under Article X.

Plaintiff seeks a permanent injunction preventing the stockholder vote on the

Conversion and its consummation. To obtain a permanent injunction, “a party must

show (i) actual success on the merits, (ii) the inadequacy of remedies at law, and (iii)

a balancing of the equities that favors an injunction.” In re COVID-Related

8
Restrictions on Religious Servs., 285 A.3d 1205, 1232–33 (Del. Ch. 2022), aff’d,

2024 WL 3616269 (Del. Aug. 1, 2024).

B. Section 266 of the DGCL
Defendants propose to effect the Conversion under Section 266 of the DGCL.

Section 266 enables Delaware corporations to convert directly into another form of

artificial entity. 24 Section 266 was enacted in 1999. Before enactment of Section

266, the end result of a conversion could be achieved by merging with a strawman

subsidiary. But “mergers for purposes of conversions were believed by some to

carry the specter of contractual, regulatory, and tax problems, should the surviving

entity be deemed to have a legal identity separate from its predecessor.” 2 David A.

Drexler, Lewis S. Black, Jr. & A. Gilchrist Sparks, III, Delaware Corporation Law

& Practice § 35.06 (2022). Section 266 addressed these concerns, expressly

providing that a statutory conversion had no effect on obligations or liabilities

between the two forms. 8 Del. C. § 266(e). Although a conversion has no effect on

the converted enterprise’s obligations and liabilities, the same cannot be said

regarding the corporation’s legal existence as a Delaware corporation. Section 266

specifies that, at the effective time, “the corporation shall cease to exist as a

corporation of this State.” 8 Del. C. § 266(d); see also 8 Del. C. § 266(e) (stating

24
The inverse effect—conversion of another type of entity into a Delaware corporation—
may be achieved under Section 265, which was adopted with Section 266 and addresses
the same concerns. 72 Del. Laws 1999, ch. 123, §§ 10–11, eff. July 1, 1999.

9
that the result under the statute is the “cessation of [the corporation’s] existence as a

corporation of this State pursuant to a certificate of conversion to non-Delaware

entity”).

For the first 23 years of its existence, Section 266 had no practical utility for

a corporation whose stock was widely held. During that time, a conversion required

the approval of “all outstanding shares of stock of the corporation, whether voting

or nonvoting.” 72 Del. Laws 1999, ch. 123, § 11, eff. July 1, 1999. In 2022, the

General Assembly amended the statute to require, by default, only “a majority of the

outstanding shares of stock of the corporation entitled to vote thereon.” 83 Del.

Laws 2022, ch. 377, § 11, eff. July 27, 2022. Thereby, the General Assembly

brought Section 266’s default voting requirement in accord with that for mergers

and consolidations. Compare 8 Del. C. § 266(b) (requiring approval of “a majority

of the outstanding shares of stock of the corporation, entitled to vote thereon”), with

8 Del. C. § 251(c) (requiring approval of “a majority of the outstanding stock of the

corporation entitled to vote thereon”).

The drafters of the 2022 amendment sought to ensure that the new majority

vote requirement for a conversion would not be used to evade preexisting certificate

provisions that required a supermajority vote for mergers and consolidations. To

that end, the General Assembly included Section 266(k):

Any provision of the certificate of incorporation of a corporation
incorporated before August 1, 2022, or any provision in any voting trust

10
agreement or other written agreement between or among any such
corporation and 1 or more of its stockholders in effect on or before
August 1, 2022, that restricts, conditions or prohibits the consummation
of a merger or consolidation shall be deemed to apply to a conversion
as if it were a merger or consolidation unless the certificate of
incorporation or such agreement expressly provides otherwise.

The rationale for Section 266(k) is easy to discern. Prior to the amendment to the

voting requirement, corporate drafters had no reason to directly address Section 266,

as there is no stronger protective voting provision than an unwaivable unanimity

requirement that requires the consent even of non-voting stock. By statutorily

adding conversions into any provision expressly addressing mergers or

consolidations, the General Assembly ensured that Section 266’s alternative to

strawman transaction structures was no more accessible than the transactions it was

designed to simplify. Thereby, Section 266(k) preserves the settled expectations of

corporations, stockholders, and corporate drafters by placing Section 266 on even

ground with mergers and consolidations.

C. Article X’s Supermajority Vote Requirement
The disposition of the Cross-Motions turns on the meaning of Article X.25

The construction or interpretation of a corporate certificate is a question of law.

25
Mechanically, Count I alleges a claim for breach of contract against the Company,
seeking an injunction preventing the Company from effecting the Conversion without
obtaining Supermajority approval. To prevail on his claim for breach of contract, Plaintiff
must show “(i) a contractual obligation, (ii) a breach of that obligation by the defendant,

11
Stream TV Networks, Inc. v. SeeCubic, Inc., 279 A.3d 323, 336 (Del. 2022); Centaur

Pr’s, IV v. Nat’l Intergroup, Inc., 582 A.2d 923, 926 (Del. 1990). Thus, the court

turns to the principles used to determine the meaning of the Certificate, which are

the same as the principles used to interpret contracts. See Hibbert v. Hollywood

Park, Inc., 457 A.2d 339, 342–43 (Del. 1983) (“[T]he rules which are used to

interpret statutes, contracts, and other written instruments are applicable when

construing corporate charters and bylaws.”); accord Matulich v. Aegis Commc’ns

Gp., Inc., 942 A.2d 596, 600 (Del. 2008).

“Delaware adheres to the objective theory of contracts, i.e. a contract’s

construction should be that which would be understood by an objective, reasonable

third party.” Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010)

(internal quotation marks omitted)). When a contract is clear and unambiguous, the

and (iii) a causally related injury that warrants a remedy, such as damages or in an
appropriate case, specific performance.” AB Stable VIII LLC v. Maps Hotels & Resorts
One LLC, 2020 WL 7024929, at *47 (Del. Ch. Nov. 30, 2020), aff’d, 268 A.3d 198 (Del.
2021). The only point of contention with respect to Count I is whether the Company is
obligated to obtain Supermajority approval of the Conversion.
Count II alleges a claim for breach of the Director Defendants’ fiduciary duty of disclosure.
To succeed on his claim for breach of fiduciary duty, Plaintiff must prove by a
preponderance of the evidence “(i) that a fiduciary duty exists; and (ii) that a fiduciary
breached that duty.” Heller v. Kiernan, 2002 WL 385545, at *3 (Del. Ch. Feb. 27, 2002),
aff’d, 806 A.2d 164 (Del. 2002) (TABLE). When directors seek stockholder action,
directors have “‘a fiduciary duty to disclose fully and fairly all material information within
the board’s control[.]’” In re GGP, Inc. S’holder Litig., 282 A.3d 37, 62 (Del. 2022)
(alteration in original) (quoting Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992). The only
point of contention with respect to Count II is whether the Director Defendants have
accurately disclosed the necessary voting threshold for the Conversion’s approval.

12
court “will give effect to the plain-meaning of the contract’s terms and provisions.”

Id. at 1159–60. The court “will read a contract as a whole and . . . will give each

provision and term effect, so as not to render any part of the contract mere

surplusage.” Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396–

97 (Del. 2010). “This approach places great weight on the plain terms of a disputed

contractual provision, and we interpret clear and unambiguous terms according to

their ordinary meaning.” Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752,

760 (Del. 2022) (internal quotation marks omitted), reargument denied (Mar. 22,

2022).

Plaintiff argues that this case begins and ends with the text and plain meaning

of Article X of the Certificate. Article X states, in full:

The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this
Restated Certificate, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by statute, and all rights,
preferences and privileges of any nature conferred upon stockholders,
directors or any other persons herein are granted subject to this
reservation; provided, however, that, notwithstanding any other
provision of this Restated Certificate or any provision of law that might
otherwise permit a lesser vote or no vote, but in addition to any vote of
the holders of any class or series of the stock of this Corporation
required by law or by this Restated Certificate, the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of the outstanding shares of stock of the Corporation
entitled to vote thereon, voting together as a single class, shall be
required to amend or repeal, or adopt any provision of this Restated
Certificate inconsistent with, ARTICLE VI, ARTICLE VII, ARTICLE
VIII, ARTICLE IX or this ARTICLE X of this Restated Certificate.

13
Plaintiff contends that Article X applies the Supermajority voting standard to

actions that “‘amend or repeal, or adopt any provision of this Restated Certificate

inconsistent with’ the Protected Provisions.” 26 Pointing to dictionary definitions of

“amend,” “repeal,” and “adopt,” Plaintiff argues that, in substance, the Conversion

falls within each. 27

26
Pl.’s Opening Br. 15 (emphasis omitted) (quoting Certificate Art. X).
27
Id. at 20–21; Pl.’s Answering & Reply Br. 10–11. Setting aside “repeal” for the moment,
both amendment and adoption directly refer to changes within the “Restated Certificate,”
as defined. By its plain language, Article X applies only to acts that “amend [specific
provisions of] this Restated Certificate,” “adopt any provision of this Restated Certificate
inconsistent with [specific provisions],” or “repeal [specific provisions of] this Restated
Certificate.” Certificate Art. X. The Certificate defines “Restated Certificate” as “this
Amended and Restated Certificate of Incorporation.” Id. Art. IV § B. Plaintiff correctly
notes that this does not merely refer to the exact iteration of the Company’s certificate, as
amended in 2020. See Pl.’s Reply & Answering Br. 14–16. As Section 104 of the DGCL
explains:
The term “certificate of incorporation,” as used in this chapter, unless the
context requires otherwise, includes not only the original certificate of
incorporation filed to create a corporation but also all other certificates,
agreements of merger or consolidation, plans of reorganization, or other
instruments, howsoever designated, which are filed pursuant to § 102, §§
133-136, § 151, §§ 241-243, § 245, §§ 251-258, §§ 263-264, § 267, § 303,
§§ 311-313, or any other section of this title, and which have the effect of
amending or supplementing in some respect a corporation’s certificate of
incorporation.
Conspicuously absent from Section 104’s definition of “certificate of incorporation,”
however, is reference to Sections 265 and 266, the provisions governing conversion of
another entity into a Delaware corporation and conversion of a Delaware corporation into
another entity, respectively. This court “assume[s] that the Legislature was aware of the
omission and intended it,” and will not “engraft upon a statute language which has been
clearly excluded therefrom by the Legislature.” Giuricich v. Emtrol Corp., 449 A.2d 232,
238 (Del. 1982); accord Wilm. Tr. Co. v. Barry, 338 A.2d 575, 578 (Del. Super. 1975)

14
Defendants argue that the Supermajority vote requirement in Article X applies

only to action taken under Section 242 of the DGCL, which specifically applies to

certificate amendments. See In re Fox Corp./Snap Inc., 312 A.3d 636, 645 (Del.

2024), as revised (Jan. 25, 2024) (“Section 242(a) authorizes charter amendments

and Section 242(b)(1) requires that stockholders approve charter amendments by the

affirmative vote of a majority of the outstanding stock entitled to vote on the

amendment.”). Because the Conversion is governed by Section 266 of the DGCL,

the Defendants invoke the doctrine of independent legal significance and decades of

(“Unless a legislative intent to have a statute read in a certain manner is ascertainable from
other parts of a statute, courts proceed with great caution in supplying omissions therein.”),
aff’d, 359 A.2d 664 (Del. 1976) (Mem.). Furthermore, consultation with Sections 265 and
266 confirms that this omission was intentional. Section 266 only refers to a “certificate
of incorporation” three times—once to provide that the certificate of conversion must
certify the date of the filing of the original certificate of incorporation, 8 Del. C. § 266(c)(2),
and twice in its extension of certificate provisions restricting mergers or consolidations to
conversions, 8 Del. C. § 266(k). By contrast, Section 265 requires the filing of a certificate
of incorporation in accordance with Section 103. 8 Del. C. § 265(b)(2). Considered
together, Sections 104, 265, and 266 indicate that, for the purposes of the DGCL, the
natural continuity of a “certificate of incorporation” across iterations occurs within the
Delaware corporate form but does not extend to other entities prior to or after a statutory
conversion. It follows therefrom that neither the instruments necessary to be filed to effect
a conversion under either provision nor the certificate or equivalent document of the
preceding or succeeding entity fall within the definition of “certificate of incorporation.”
As applied here, the Nevada Certificate does not fall within the definition of “Restated
Certificate” as employed in Article X. Article X provides that a Supermajority vote is
required to “amend [specific provisions of] this Restated Certificate” or “adopt any
provision of this Restated Certificate inconsistent with [specific provisions].” Because the
Nevada Certificate is not an iteration of the continuous “Restated Certificate,” the effect of
the cessation of the effectiveness of the Certificate and commencement of the effectiveness
of the Nevada Certificate is not to “amend” or “adopt” any provision of the “Restated
Certificate,” and neither phrase is implicated here.

15
case law from the Delaware Supreme Court and this court for the proposition that

the Supermajority vote provision in Article X could only apply if it contained

specific language extending its reach to mergers, consolidations, conversions, or

similar transactions. A discussion of that case law helps to place the Plaintiff’s plain

meaning argument in context.

1. The doctrine of independent legal significance and Warner,
Avatex, and their progeny are controlling.
The foundation of Defendants’ argument is the doctrine of independent legal

significance. “[T]he doctrine of independent legal significance holds that legal

action authorized under one section of the corporation law is not invalid because it

causes a result that would not be achievable if pursued through other action under

other provisions of the statute.” SIPCA Hldgs. S.A. v. Optical Coating Lab’y, Inc.,

1997 WL 10263, at *5 (Del. Ch. Jan. 6, 1997). The quintessential example of this

principle’s application is embodied by comparison of Keller v. Wilson & Co., Inc.,

190 A. 115 (Del. 1936), where the Delaware Supreme Court found null and void a

certificate amendment purporting to eliminate accrued preferred dividends, and

Federal United Corp. v. Havender, 11 A.2d 331 (Del. 1940), which permitted an

identical effect to occur through a merger. As the Havender court explained, “[t]o

say that the right to such dividends may not be destroyed by charter amendment . . .

is not to say that the right may not be compounded under the merger provisions”

because “[t]here is a clear distinction between the situations recognized by the

16
General Law and the modes of procedure applicable to each of them.” 11 A.2d at

342. Though not without controversy at the time, recommendations to statutorily

overrule Havender were rejected, and “the doctrine of independent legal significance

remains a cornerstone principle of interpretation that governs the application of

Delaware’s business entity statutes.” In re Kinder Morgan, Inc. Corp.

Reorganization Litig., 2014 WL 5667334, at *5 (Del. Ch. Nov. 5, 2014).

Defendants argue that the doctrine of independent legal significance, as

applied and articulated in a long line of decisions, starting with Warner

Communications Inc. v. Chris-Craft Industries, Inc., 583 A.2d 962 (Del. Ch. 1989),

aff’d, 567 A.2d 419 (Del. 1989) (TABLE), renders the Supermajority vote under

Article X inapplicable to the Conversion.

Warner involved a challenge to a proposed merger in which the Series B

Preferred Stock would be converted to a different series of preferred stock in the

post-merger entity. The Series B stockholders contended that two certificate

provisions granted them a vote on the transaction: section 3.3(i), which provided

that a vote of the Series B “shall be necessary to alter or change any rights,

preferences or limitations of the Preferred Stock so as to affect the holders of all of

such shares adversely,” and section 3.4(i), which provided that the corporation

would not “amend, alter or repeal any of the provisions of the Certificate of

Incorporation or By-laws of the Corporation so as to affect adversely any of the

17
preferences, rights, powers or privileges of the Series B” without the Series B’s

consent. Id. at 964–65.

The Warner court concluded that each provision only applied to certificate

amendments under Section 242 of the DGCL. As the court explained, section 3.4(i)

facially only provided a vote to “amend, alter or repeal any of the provisions of the

Certificate,” plainly indicating that it was intended to modify the requirements for

actions under Section 242. Id. at 967–68. With respect to section 3.3(i), the court

acknowledged that the language could be read more broadly, but held that it, too,

applied only to actions taken under Section 242, emphasizing “close similarity

between the operative language of Section 3.3(i) and Section 242(b)(2)” and that

another provision of the certificate expressly provided for votes on certain mergers.

Id. at 968–71.

Having determined that these provisions applied only to certificate

amendments effected pursuant to Section 242, the court held that neither provision

gave the defendants a vote on the transaction, because any adverse effect resulted

from a merger under Section 251, not a certificate amendment under Section 242.

The court explained that the certificate’s drafters “must be deemed to have

understood, and no doubt did understand” the doctrine of independent legal

significance. Id. at 969. Hence, the “bedrock doctrine of independent legal

significance compel[led] the conclusion that satisfaction of the requirements of

18
Section 251 is all that is required legally to effectuate a merger.” Id. at 970 (citations

omitted).

Three years later, this court was faced with a slight twist on the certificate

language at issue in Warner. In Sullivan Money Management, Inc. v. FLS Holdings

Inc., the certificate prevented the corporation from “chang[ing], by amendment to

the [certificate] or otherwise,” the terms of the preferred stock so as to adversely

affect the rights and preferences of the preferred holders. 1992 WL 345453, at *2

(Del. Ch. Nov. 20, 1992), aff’d, 628 A.2d 84 (Del. 1993) (TABLE). This court

concluded that the mere addition of “or otherwise” after a clause restricting changes

“by amendment to the Certificate of Incorporation of the Corporation” was

insufficient to convey a class vote on a merger with a similar effect. Acknowledging

that this language was “arguably distinguishable from Warner, because Section

B.1(H)(iii) contains a phrase not involved in Warner or found in § 242(b)(2),” the

FLS court concluded that the difference had no effect on the outcome, for three

reasons. Id. at *3. First, neither the phrase the plaintiffs highlighted nor the section

in which it was found “mentions mergers at all.” Id. Second, a class vote on mergers

was provided in a separate provision of the certificate, indicating that its drafters did

not intend to confer a vote on mergers in the language upon which the plaintiffs

relied. Id. at *5. Third, the plaintiffs generally did not find support elsewhere in the

certificate for their broad interpretation of “or otherwise.” Id. at *6. Although the

19
court noted that the defendants’ interpretation was not particularly compelling, the

court concluded that the absence of any “words of explicit import clearly

express[ing] the voting right” meant that the plaintiffs, as the party with the burden,

could not prevail. Id. at *7.

A few years later, Elliott Associates, L.P. v. Avatex Corp., 715 A.2d 843 (Del.

1998), presented a certificate provision that was much broader than those in Warner

and FLS. There, the relevant portion of the Avatex certificate provided the preferred

stockholders with a vote on any “amendment, alteration or repeal, whether by

merger, consolidation or otherwise, of any of the provisions of the Restated

Certificate of Incorporation” that would “materially and adversely affect” the rights

or preferences of the preferred stock. Id. at 845 (emphasis added) (internal quotation

marks omitted). The corporation proposed a merger that would result in the

preferred stock being converted into common stock, effectively eliminating the

certificate which had provided for the preferred stock’s rights and preferences. The

plaintiffs, preferred stockholders, contended that this provision afforded the

preferred a vote on the transaction. The corporation contended that, as in Warner,

the preferred had no right to vote on the transaction. In an opinion reversing this

court, the Supreme Court held that the preferred stockholders were entitled to vote

on the transaction because the phrase “whether by merger, consolidation or

otherwise” in the Avatex certificate was “materially different from the language in

20
Warner” and “entirely changes the analysis.” Avatex, 715 A.2d at 854. The Court

construed the additional language to indicate that the provision was not limited to

actions taken under Section 242. The Court reasoned: “In speaking of the

‘amendment, alteration or repeal’ of the Avatex certificate by ‘merger, consolidation

or otherwise,’ the drafters must have been referring to some or all of the events

permitted by Section 251. Therefore, Section 251 provides the relevant backdrop

. . . .” Id. at 850.

Having determined that Section 251 framed the analysis, the Court concluded

that the proposed merger, in which the corporation “would simply disappear,”

rendered the certificate a “legal nullity” and “constitute[d] a repeal, if not an

amendment or alteration.” Id. at 851. In doing so, the Court rejected the defendants’

argument that a stockholder vote would be required only if Avatex survived the

merger and its certificate were amended thereby. The Court reasoned that the

defendants’ argument “fail[ed] to account for the word consolidation” in which the

resulting corporation “is a completely new entity with a new certificate of

incorporation.” Id. (emphasis omitted). Therefore, the use of the word

“consolidation” indicated that the drafters contemplated the right to a stockholder

vote on transactions in which Avatex “would simply disappear.” Id.

In the conclusion of its opinion, the Court went out of its way to provide clear

guidance for practitioners:

21
The path for future drafters to follow in articulating class vote
provisions is clear. When a certificate (like the Warner certificate or
the Series A provisions here) grants only the right to vote on an
amendment, alteration or repeal, the preferred have no class vote in a
merger. When a certificate (like the First Series Preferred certificate
here) adds the terms “whether by merger, consolidation or otherwise”
and a merger results in an amendment, alteration or repeal that causes
an adverse effect on the preferred, there would be a class vote.

Id. at 855.

In Starkman v. United Parcel Service of America, Inc., this court applied the

reasoning of Warner and Avatex to a certificate provision that was not limited to

preferred stock rights. C.A. No. 17747 (Del. Ch. Oct. 18, 1999) (TRANSCRIPT).

In that case, the plaintiff was a stockholder of “Old UPS.” In the proposed

transaction, Old UPS merged into its second-tier subsidiary, and Old UPS’s

stockholders’ shares were exchanged for shares of Old UPS’s pre-transaction first-

tier subsidiary (“New UPS”). Id. at 7:15–16, 8:3–10. After the transaction, New

UPS was the top-level parent in the corporate structure. Id. at 7:16–18. There was

no economic substance to the restructuring, but New UPS’s certificate was different

from Old UPS’s certificate. As the court explained, “[t]he net effect of this, in one

way of looking at it, is that the company is getting a new charter.” Id. at 9:17–19.

The stockholder plaintiff contended that the transaction triggered Article Fifth of the

Old UPS certificate, which imposed a supermajority vote of all outstanding stock,

voting together, for “any amendments to or deletion of” that provision. Id. at 16:8–

15 (internal quotation marks omitted). The court disagreed. Id. at 15:17–23. First,

22
based on the provision’s construction, the court concluded that the supermajority

vote did not apply because the proposed transaction, which flipped the corporation’s

ownership structure, technically left the Old UPS certificate untouched, neither

amending nor deleting the protected provision. Id. at 18:1–12. Second, the court

explained that it “read Avatex and Warner [] as controlling the outcome here and

requiring a finding that paragraph (9)’s supermajority voting requirement would not

apply even if the charter of the surviving corporation in the merger amended or

deleted the right of first refusal found in Article Fifth.” Id. at 19:14–21. The

Starkman court juxtaposed the two cases, highlighting that “the Supreme Court in

Avatex rested its holding on the presence of language in the Avatex certificate of

incorporation specifically referring to the possibility of an amendment, alteration or

repeal by merger, consolidation or otherwise,” whereas that “critical language,

referring to merger, consolidation or otherwise, was not found in Warner and is not

found here.” Id. at 19:21–20:5. Therefore, under Warner and Avatex, the merger

was subject only to majority stockholder approval under Section 251.

Three years later in Benchmark Capital Partners IV, L.P. v. Vague, 2002 WL

1732423 (Del. Ch. July 15, 2002), aff’d sub nom. Benchmark Capital Partners IV,

L.P. v. Juniper Financial Corp., 822 A.2d 396 (Del. 2003) (TABLE), this court

followed and arguably expanded upon the Warner line of cases. In Benchmark, a

holder of preferred stock raised protections under several provisions in the certificate

23
to challenge a restructuring transaction harmful to its interests. The court first

rejected the plaintiff’s argument under a provision with language substantially

similar to Section 242(b), in a direct application of the Warner court’s reasoning

with respect to similar language, explaining that “[w]here the drafters have tracked

[Section 242’s language], courts have been reluctant to expand those restrictions to

encompass the separate process of merger.” Benchmark, 2002 WL 1732423, at *7.

With respect to the second provision, the court acknowledged that it “does not

track or even resemble” Section 242. Id. at *9. But the court concluded that, even

in the absence of obvious similarities between the certificate’s language and the

statute, “the words chosen by the drafters must be read ‘against the background of

Delaware precedent,’” which required clear language authorizing a class vote. Id.

at *10 (quoting Avatex, 715 A.2d at 852). “Warner and the cases following it, and

Starkman in particular, demonstrate that certain rights of the holders of preferred

stock that are secured by the corporate charter are at risk when a merger leads to

changes in the corporation’s capital structure.” Id. at *10 (footnote omitted). The

court emphasized the presence of prior guidance to corporate drafters, reiterating

that:

To protect against the potential negative effects of a merger, those who
draft protective provisions have been instructed to make clear that those
protective provisions specifically and directly limit the mischief that
can otherwise be accomplished through a merger under 8 Del. C. §
251. . . . General language alone granting preferred stockholders a
class vote on certain changes to the corporate charter (such as

24
authorization of a senior series of stock) will not be read to require a
class vote on a merger and its integral and accompanying modifications
to the corporate charter and the corporation’s capital structure.

Id. (footnote omitted). In so ruling, the court explained that it was “reluctant both to

presume that protection from a merger was intended and, perhaps more importantly,

to create uncertainty in a complex area where Avatex has set down a framework for

consistency.” Id. at *10.28

Over the last 20 years since Benchmark, this court has continued to adhere to

Warner’s application of the doctrine of independent legal significance and refused

to extend certificate-based voting requirements to mergers and consolidations absent

clear language in accordance with Avatex. See, e.g., Greenmont Cap. P’rs I, LP v.

Mary’s Gone Crackers, Inc., 2012 WL 4479999, at *5 (Del. Ch. Sept. 28, 2012)

(noting that “the drafters appear to have attempted to take advantage of the safe

harbor offered by Avatex” “by including the words ‘whether by merger,

consolidation, or otherwise’” in a protection against “‘action that alters or changes’”

rights, but concluding that the challenged conversion merely “effectuate[d] an

existing right” and, therefore, was not an alteration or change); SBTS, LLC v. NRC

Gp. Hldgs. Corp., C.A. No. 2019-0566-JTL, at 33:13–18 (Del. Ch. Sept. 11, 2019)

28
The Benchmark plaintiff’s third contention concerned a restriction on the corporation’s
ability to issue senior equity, the interpretation of which did not implicate the
“‘background’ precedent” of Warner and its progeny pertinent to this case. Benchmark,
2002 WL 1732423, at *11.

25
(TRANSCRIPT) (endorsing the proposition that, under Avatex, the phrase “by

merger, consolidation or otherwise” in a certificate provision extends special voting

rights to actions taken under Section 251 and observing that “while technical and

formal” this approach was “consistent with how these principles evolved under

Delaware law”). 29 Defendants argue that Warner and its progeny apply and are

controlling here. The court agrees.

2. Plaintiff’s arguments do not compel a Supermajority vote
requirement for the Conversion.
Plaintiff’s core arguments to the contrary are that the plain language of Article

X requires a Supermajority vote to approve the Conversion and that the court should

look to the Conversion’s substance, not its form. He further contends that Article X

is not limited to amendments under Section 242 of the DGCL and that the Warner

and Avatex line of cases are inapplicable because of formal differences between

mergers and conversions. He also argues that any ambiguity should be construed in

favor of the common stockholders.

29
The court ultimately concluded that the challenged transaction, as structured, did not
amend, alter, or repeal protected provisions of the certificate. In order to provide the parties
with time to take an expedited appeal, the court indicated that it was adopting the arguments
made by the main defendants. See SBTS, C.A. No. 2019-0566-JTL, 33:5–7, 34:11–13
(TRANSCRIPT). The operative language of the certificate and substantive arguments
from the case are taken from the SBTS defendants’ briefs. See SBTS, LLC v. NRC Gp.
Hldgs. Corp., C.A. No. 2019-0566-JTL (Del. Ch.), Dkts. 19, 34.

26
a. Warner is not limited to preferred stock preferences.

Plaintiff argues that Warner, Avatex, and Benchmark are inapplicable here

because they involved the voting rights of preferred stock, which are said to be

strictly construed. 30 See Holland v. Nat’l Auto. Fibres, 194 A. 124, 126 (Del. Ch.

1937) (observing that the preferences of preferred stock “ought to be clearly

expressed, if not by words of explicit import, at least by necessary implication”).

But that interpretive lens posed no impediment in Starkman, which was not limited

to the rights of preferred stock.31 Furthermore, it is well established that, like the

preferences of preferred stock, “high vote requirements” “must be clear and

unambiguous,” leaving “no doubt that the shareholders intended that a supermajority

would be required.” Centaur, 582 A.2d at 927. Thus, this argument is unavailing.

30
Pl.’s Opening Br. 2–3, 22, 32–34.
31
Nor was it an impediment in In re P3 Health Group Holdings, LLC, which applied
Warner and Avatex to conclude that the plaintiff’s consent right to any change in the limited
liability company’s board of managers did not grant a separate vote on a merger. 2022 WL
16548567, at *13 (Del. Ch. Oct. 31, 2022) (“Delaware decisions have made clear that if a
party wants a consent right that applies to mergers generally, or which applies to mergers
that have the effect of altering, amending, or eliminating a special right that the party
possesses, then the consent right must refer specifically to a merger.” (citing Avatex, 715
A.2d at 854–55)). Plaintiff acknowledges that cases in the alternative entity context can
be persuasive. See Pl.’s Reply & Answering Br. 20 & n.63.

27
b. Plaintiff’s plain language arguments do not displace
the weight of the case law.
Plaintiff is correct that when construing contracts “‘Delaware courts start with

the text. And if the text is unambiguous, Delaware courts end there too.’”32 But

Plaintiff’s argument construes the relevant “text” too narrowly. Individual words

“must be read together with” accompanying language, as well as “the other DGCL

sections addressing” the same subject. Fox/Snap, 312 A.3d at 647; see Activision

Blizzard, Inc. v. Hayes, 106 A.3d 1029, 1033–34 (Del. 2013) (rejecting a result that

“fits the dictionary definition” of a phrase in the certificate and explaining that “the

provision must be read in context”). When applying contract interpretation

principles, “Delaware courts read the agreement as a whole and enforce the plain

meaning of clear and unambiguous language.” Manti Hldgs., LLC v. Authentix Acq.

Co., Inc., 261 A.3d 1199, 1208 (Del. 2021). When it comes to the construction and

interpretation of a certificate of incorporation, “the agreement as a whole” includes

the DGCL and all of its amendments, which the Delaware legislature has determined

“shall be a part of the charter or certificate of incorporation of every corporation

except so far as the same are inapplicable and inappropriate to the objects of the

corporation.” 8 Del. C. § 394; see also Benchmark, 2002 WL 1732423, at *9

32
Pl.’s Opening Br. 20 (quoting SeaWorld Ent., Inc. v. Andrews, 2023 WL 3563047, at *3
(Del. Ch. May 19, 2023) (footnotes and internal quotation marks omitted), aff’d, 314 A.3d
662 (Del. 2024) (TABLE)).

28
(observing that “drafters of [corporate governance documents] are charged with

knowledge” of decisional case law with respect to specific language and its effects

under our law). Therefore, when looking to the “text,” the court looks not only to

the single phrase upon which Plaintiff focuses, but also to the rest of Article X, the

rest of the Certificate, the DGCL, the decisional case law, and the interpretative

principles that apply at each level.

Certificate amendments are the subject of Section 242 of the DGCL.

Fox/Snap, 312 A.3d at 645; Warner, 583 A.2d at 969. “Section 242(a) authorizes

charter amendments and Section 242(b)(1) requires that stockholders approve

charter amendments by the affirmative vote of a majority of the outstanding stock

entitled to vote on the amendment.” Fox/Snap, 312 A.3d at 645.

It is apparent from the plain language of Article X, read as a whole, that it

pertains to certificate amendments.33 The first half of Article X advises that the

33
Plaintiff’s argument that the Supreme Court’s decision in Stream TV dictates a different
analysis and different result is misplaced. In Stream TV, the Court held that Section 271
of the DGCL, which applies to a “sale, lease or exchange” of all or substantially all assets
could not serve as an interpretive guide to a certificate provision that afforded a class vote
in the event of an “Asset Transfer.” Stream TV, 279 A.3d at 338–39. The certificate
defined Asset Transfer as “a sale, lease or other disposition of all or substantially all of the
assets or intellectual property” of the corporation. Id. at 338 (emphasis added) (internal
quotation marks omitted). The Court concluded that this language was “broader” and
“materially different” from the language in Section 271. Id. at 337–39. Stream TV is
wholly consistent with Avatex, where the certificate language was materially different from
Warner and, therefore, extended a vote to mergers and consolidations effected under
Section 251. Unlike in Stream TV and Avatex, Plaintiff here does not point to language in

29
corporation could seek to “amend, alter, change or repeal any provision contained in

this Restated Certificate,” explains that “other provisions authorized by the laws of

the State of Delaware at the time in force may be added or inserted, in the manner

now or hereafter prescribed by statute,” and cautions that “all rights, preferences and

privileges of any nature conferred upon stockholders, directors or any other persons

herein are granted subject to this reservation.” The first and third clause each

expressly identifies their object as the Certificate (“amend [etc.] this Restated

Certificate”; “all rights, preferences and privileges . . . conferred . . . herein”

(emphasis added)). It naturally follows that the provision between them refers to the

same object (“other provisions [of this Restated Certificate] . . . may be added or

inserted”).

This reading is also consistent with the case law construing similar provisions.

For example, the reference to “rights, preferences and privileges” is identical to that

which this court found in Benchmark to be “substantially the same” as language in

Section 242. 2002 WL 1732423, at *7. And the language discussing action to

“amend, alter, change or repeal any provision contained in this Restated Certificate”

Article X that is “materially different” from Section 242. Instead, Plaintiff simply contends
that “the language of Article X bears no resemblance to the language of Section 242(b)(2).”
Pl.’s Opening Br. 29. But a direct resemblance is not necessary to conclude that Article X
applies to certificate amendments, and there are no stark deviations in Article X from
language with an established meaning, akin to the dispositive drafting choices in Stream
TV and Avatex.

30
is substantially similar to the language the Warner court found referred to certificate

amendments under Section 242: “amend, alter or repeal any of the provisions of the

Certificate of Incorporation.” 583 A.2d at 965 (internal quotation marks omitted).

Thus, the first half of Article X relates only to certificate amendments under Section

242.

Plaintiff’s focus on the single phrase “amend or repeal, or adopt” in the second

half of Article X does not expand its scope beyond Section 242.34 Short phrases, of

34
The conditional proviso at the beginning of the second half of Article X does not change
the analysis. The Starkman court considered and rejected an argument that prefatory
language similar to that in Article X required a more expansive interpretation of Old UPS’s
Article Fifth, explaining that “[i]t is unreasonable and unfair to read this prefatory language
to expand the scope of [Article Fifth’s] supermajority vote requirement beyond
amendments to the certificate of incorporation or to preclude the authorization of other
transactions authorized by sections other than Section 242 of the statute” because this
“introductory language, in my opinion, has a [] modest purpose,” serving “merely to clarify
the interplay between potentially inconsistent provisions of the charter” and the voting
requirements under Section 242. C.A. No. 17747, at 21:8–12, 22:6–12 (TRANSCRIPT);
compare id. at 20:19–21 (“‘notwithstanding anything contained in this Certificate of
Incorporation to the contrary’”), with Certificate Art. X (“notwithstanding any other
provision of this Restated Certificate or any provision of law that might otherwise permit
a lesser vote or no vote, but in addition to any vote of the holders of any class or series of
the stock of this Corporation required by law or by this Restated Certificate”). Although
Article X’s reference to “any provision of law that might otherwise permit a lesser vote or
no vote” is phrasing not found in the certificate in Starkman, it does not, as Plaintiff argues,
“displace[] the DGCL with respect to the stockholder vote here.” Pl.’s Reply & Answering
Br. 30. “A proviso, as introduced here by the word ‘provided,’ acts as a limitation on the
language that describes the scope of the provision and is read in reference to the specific
scope of the language defining the provision’s application.” In re Explorer Pipeline Co.,
781 A.2d 705, 719 (Del. Ch. 2001); accord ITG Brands, LLC v. Reynolds Am., Inc., 2017
WL 5903355, at *8 (Del. Ch. Nov. 30, 2017) (“The second [phrase] is a proviso, i.e., ‘a
clause that introduces a condition by the word provided.’ A proviso ‘conditions the
principal matter that it qualifies,’ which is ‘almost always the matter immediately

31
course, can have material effects on the meaning of a contract. Indeed, one was

determinative in Avatex. 715 A.2d at 854 (“[T]he language of the [Avatex certificate]

is materially different from the language in Warner because here we have the phrase,

‘whether by merger, consolidation or otherwise.’ This provision entirely changes

the analysis and compels the result we hold today.”).35 But each phrase must be read

in the full context of the Certificate, statute, and governing case law, and the case

law makes clear that express language referencing specific corporate acts is

necessary to achieve the effect Plaintiff seeks. Compare FLS, 1992 WL 345453, at

*3 (finding that a class vote provision only applied to Section 242 amendments

because “neither the phrase ‘by amendment . . . or otherwise’ nor Section B.1(H)(iii)

mentions mergers at all” (alteration in original)), with Avatex, 715 A.2d at 854 &

n.49 (identifying that the Court “need not wrestle with the words ‘or otherwise’ as

the Court of Chancery did in” FLS “[b]ecause the word consolidation is included”).

preceding.’” (quoting Antonin Scalia & Bryan A. Garner, Reading Law: The
Interpretation of Legal Texts 154 (2012))). Nothing in Article X’s proviso takes its subject
matter outside of actions under Section 242.
35
Plaintiff contends that “Centaur stands for the proposition that the use of the phrase
‘amend or repeal, or adopt any provision inconsistent with’ constitutes a clear expression
of an intent to impose a broad supermajority-approval requirement not subject to evasion
by creative transaction planners.” Pl.’s Opening Br. 31. Not so. While that language
appeared in the certificate and bylaws at issue in Centaur, it was not at issue. Instead, the
Court’s analysis focused on the interpretation of the phrase “or any similar provision.” The
mere presence of this phrase in the background of an opinion deciding a different issue is
not persuasive.

32
Read in context, the phrase “amend or repeal, or adopt” tracks the language

in the first half of Article X and must be limited to actions taken under Section 242.

The restrictions to “amend or repeal” track the first clause (“amend, alter, change or

repeal”) and the restriction to “adopt any provision” tracks the second clause (“other

provisions . . . may be added or inserted”). The phrasing varies between the first and

second half of Article X, but the language in the second half of Article X offers no

indication of intent to expand the proviso beyond the language it purports to limit.

Moreover, the clause identifying the restricted actions affirms twice that such actions

are only with respect to “this Restated Certificate.”

Altogether, all clear references to what Article X concerns point to certificate

amendments under Section 242, and the rest of Article X neatly fits under that

section without providing any indication that corporate action taken under other

sections of the DGCL would be implicated. See FLS, 1992 WL 345453, at *5 (“The

drafters’ failure to express with clarity an intent to confer class voting rights in the

event of a merger suggests that they had no intention of doing so . . . .”); Benchmark,

2002 WL 1732423, at *10 (“General language alone granting preferred stockholders

a class vote on certain changes to the corporate charter (such as authorization of a

senior series of stock) will not be read to require a class vote on a merger and its

integral and accompanying modifications to the corporate charter and the

corporation’s capital structure.”). “‘Thus, Warner, which was reaffirmed by the

33
Supreme Court, requires that I read [the supermajority provision] to pertain only to

charter amendments proposed in accordance with section 242 of the Delaware

General Corporation Law.’” Benchmark, 2002 WL 1732423, at *8 (alteration in

original) (quoting Starkman, C.A. No. 17747, at 20:5–9 (TRANSCRIPT)).

Further confirming this reading is the drafters’ inclusion of special voting

rights elsewhere in the Certificate. Article IV(C)(2)(c) provides, in pertinent part:

Any merger or consolidation of the Corporation with or into any other
entity, or any other transaction having an effect on stockholders
substantially similar to that resulting from a consolidation or merger, in
each case which is not a Change of Control Transaction, shall require
approval by the affirmative vote of the holders of a majority of the
outstanding shares of Class A Common Stock and Class B Common
Stock, each voting separately as a class, unless (i) the shares of Class A
Common Stock and Class B Common Stock remain outstanding and no
other consideration is received in respect thereof or (ii) such shares are
converted on a pro rata basis into shares of the surviving or parent entity
in such transaction having substantially identical rights to the shares of
Class A Common Stock and Class B Common Stock, respectively.36

Article IV(C)(2)(c)’s clear and explicit expression of special voting rights in the

event of a “merger or consolidation . . . or any other transaction” having a certain

“effect on stockholders” stands in stark contrast to Article X, which contains no such

expression. See FLS, 1992 WL 345453, at *5 (refusing to construe a certificate

provision as affording a class vote on a merger where it did not expressly so provide,

noting that the drafters explicitly did so elsewhere in the certificate). Had the drafters

36
Certificate Art. IV(C)(2)(c).

34
of Article X intended to expand its scope beyond actions taken under Section 242 of

the DGCL, “they knew fully well how to do so.” Id. at *5; see also Warner, 583

A.2d at 970 (opining that the drafters’ having expressly addressed the possibility of

a class vote on a merger elsewhere in the certificate suggested that a different special

vote provision which did not expressly mention mergers was inapplicable).

It is apparent from the case law that corporate drafters are well aware of and

have employed the Avatex language when they want to extend special voting rights

beyond Section 242. See, e.g., Mary’s Gone Crackers, 2012 WL 4479999, at *5

(employing the exact language from Avatex); SBTS, C.A. No. 2019-0566-JTL

(TRANSCRIPT) (same). “The drafters [of Article X] could have simply tracked the

language [of Avatex], but did not.” Stream TV, 279 A.3d at 339 (internal quotation

marks omitted). The clear language and structure of Article X indicate that it applies

only to certificate amendments under Section 242, and the absence of language akin

to that in Avatex in Article X indicates that it was not intended to have broader effect.

35
c. Plaintiff’s appeal to substance over form is unavailing.

Essentially ignoring the doctrine of independent legal significance, Plaintiff

contends that Delaware law requires the court to consider substance over form.37

This argument lacks persuasive force under the circumstances of this case.

37
Pl.’s Reply & Answering Br. 19–20. Plaintiff relies heavily on Twin Bridges Ltd.
Partnership v. Draper, 2007 WL 2744609 (Del. Ch. Sept. 14, 2007), as authority for
requiring a Supermajority vote. The circumstances of that case do not resemble the
situation here. Twin Bridges involved a limited partnership and claims arising out of the
adoption of a new limited partnership agreement and related merger. The operative limited
partnership agreement required a unanimous vote of the members for certain actions. This
court, applying the step-transaction doctrine utilized in tax law, held that the amendment
and merger constituted a single transaction. Relying on Avatex, the court deemed the
adoption of the new limited partnership agreement to be an amendment of the old
agreement, potentially implicating the unanimous vote requirement. Ultimately, however,
the court concluded that the amendment and merger were not events that required a
unanimous vote, either together or independently. Thus, the opinion’s assessment that the
extinguishment of the old operating agreement in exchange for a new one constituted an
amendment under the operating agreement is dicta. Furthermore, the court determined that
the pertinent section of the limited partnership agreement did not parallel the terms of the
limited partnership act. When viewed in light of the Warner/Avatex line of cases, Twin
Bridges is limited to its facts and is not persuasive here. For example, this court declined
to consider the doctrine of independent legal significance to interpret the limited
partnership agreement and did not find a statutory parallel to the partnership agreement
that would go to the unanimous vote requirement. Twin Bridges, 2007 WL 2744609, at
*10 n.47 (explaining that “my resolution of the substantive issues in this case does not turn
on” the doctrine of independent legal significance). Activision is equally unavailing.
Activision did not discuss or even cite to Warner or Avatex. Unconcerned with the form of
the challenged transaction, the Court ruled on the grounds that the phrase “merger, business
combination, or similar transaction” did not cover the corporation’s acquisition of a holding
company that controlled 38% of the corporation’s outstanding stock, concluding that the
“inert” holding company was not a “business.” Activision, 106 A.3d at 1031, 1034.
Plaintiff also cited Pasternak v. Glazer, 1996 WL 549960 (Del. Ch. Sept. 24, 1996), in his
briefing for the proposition that the court should not interpret Article X to create a “glaring
loophole,” but did not press its applicability at oral argument—presumably recognizing, as
Defendants pointed out in their final brief, that the Supreme Court vacated the trial court’s

36
The doctrine of independent legal significance is a bedrock of Delaware

corporate law and should not easily be displaced. “An open-ended inquiry into

substantively equivalent outcomes, devoid of attention to the formal means by which

they are reached, is inconsistent with the manner in which Delaware law approaches

issues of transactional validity and compliance with the applicable business entity

statute and operative entity documents.” Kinder Morgan, 2014 WL 5667334, at *9;

see Avatex, 715 A.2d at 855 (explaining that it is important to provide “results [that]

are uniform, predictable and consistent with existing law”). As this court has

observed, “the entire field of corporation law has largely to do with formality.

Corporations come into existence and are accorded their characteristics, including

most importantly limited liability, because of formal acts. Formality has significant

utility for business planners and investors.” Uni-Marts, Inc. v. Stein, 1996 WL

466961, at *9 (Del. Ch. Aug. 12, 1996) (“[W]hen construing the reach and meaning

of provisions of the Delaware General Corporation Law, our law is formal.”); accord

Speiser v. Baker, 525 A.2d 1001, 1008 (Del. Ch. 1987) (“Thus, Delaware courts,

when called upon to construe the technical and carefully drafted provisions of our

opinion on appeal. See Glazer v. Pasternak, 693 A.2d 319 (Del. 1997) (vacating the trial
court’s opinion because the appeal had become moot). “A vacated decision has no force
and effect,” and requires no further analysis. Pauley ex rel Pauley v. Reinoehl, 848 A.2d
561, 566 (Del. 2003), opinion partially vacated on reargument, 848 A.2d 569 (Del. 2004);
see Klaassen v. Allegro Dev. Corp., 2013 WL 5967028, at *10 (Del. Ch. Nov. 7, 2013)
(“Ironically, the Pauley opinion was itself partially vacated on reargument, but not with
respect to its holding on vacatur.”).

37
statutory corporation law, do so with a sensitivity to the importance of the

predictability of that law.”).

The court’s goal here is to give effect to the drafters’ decisions in selecting

which words to use—and which words to not use. Where decades of case law

provides express guidance to corporate drafters and emphasizes that our courts

charge drafters with knowledge of that case law, giving effect to the drafters’

decisions entails adhering to that guidance at the judicial level as well.

The central principles under Warner and Avatex have “evolved under

Delaware law” in a “technical and formal” manner. SBTS, C.A. No. 2019-0566-

JTL, at 33:16–18 (TRANSCRIPT). Wholesale abandonment of formality in a

clearly defined area of law would frustrate drafters’ intent and undermine the utility

and predictability offered thereby.

This is not to say that there is no place for an inquiry into the substance of a

transaction in the interpretation of a certificate’s language. As Plaintiff’s authorities

make clear, a substantive analysis may prove necessary to determine drafters’ intent

in adopting a particular provision. But here, exalting substance over form would be

misguided. Just as a more substantive analysis may be necessary to ensure that the

actual intent of the parties is given effect, so too does formality play a critical role

in the interpretation of certificates and corporate law writ large. Warner and its

progeny control here. These cases have drawn clear lines for corporate drafters to

38
follow when seeking to extend a protective supermajority certificate amendment

provision to govern actions under DGCL sections other than Section 242. The

drafters of Article X neither employed the specific language endorsed in Avatex, nor

anything remotely similar. The court ascribes intent to that omission and declines

Plaintiff’s invitation to reject the governing case law and drafters’ reliance thereon.

d. Neither Plaintiff’s pivot to formalism nor his
invocation of the implied covenant change the
outcome.
At oral argument, Plaintiff conceded that a Supermajority vote under Article

X would not be required if Defendants had proposed effecting the reincorporation

by way of a merger instead of under Section 266. 38 Plaintiff’s concession essentially

reflects the abandonment of his earlier argument that “Article X’s Supermajority

Approval requirement applies in a variety of circumstances” (i.e., not only to

amendments under Section 242) and that the “broad language [of Article X]

indicates that [the Supermajority] requirement is intended to apply expansively to

safeguard the rights of the Company’s minority, public stockholders.” 39 Rather,

Plaintiff not only acknowledges that Warner and its progeny are applicable in

38
Dkt. 32 at 19:3–24 (“I agree with that because Avatex says so expressly . . . . [I]f you
want to capture that, you have to make sure that you are using the words ‘by merger or
otherwise.’ So I just think because mergers work in different ways, you can have a merger
that has no impact on the charter at all. Yes, Avatex covers that. So if they wanted to do
this by merger, there would not be a charter-based objection to that.”).
39
Pl.’s Opening Br. 41.

39
construing Article X, but also that the application of that framework limits Article X

to actions taken under Section 242.

Undaunted, Plaintiff pivots to formalism and argues that differences between

mergers and conversions mandate different treatment under the Certificate, even

though they would have the same end result. Plaintiff argues that Article X applies

to conversions because a “repeal” of the Protected Provisions, one of the prohibited

actions, can encompass actions rendering a certificate “a legal nullity”—the essential

effect of a Section 266 conversion. Avatex, 715 A.2d at 851 (explaining that a

merger whereby the non-surviving corporation “will cease its independent

existence” and “its certificate becomes a legal nullity” “constitutes a repeal, if not

an amendment or alteration”); see 8 Del. C. § 266(d) (explaining that “the

corporation shall cease to exist as a corporation of this State” at the effective time,

without any involvement regarding such former corporation’s technically unaltered

certificate). Plaintiff contends that because the effect of a conversion is, broadly

speaking, a “repeal,” the mere use of the word “repeal,” without more, mandates that

Article X applies to a conversion under Section 266. The issue for Plaintiff,

however, is that the mere potential for a “repeal” as a result of a conversion does not

mean that Article X applies to conversions under Warner and its progeny. As the

Avatex Court made clear, the “outcome-determinative” distinction between that case

and Warner lay not in the words “amendment, alteration or repeal”—the material

40
difference was “the phrase, ‘whether by merger, consolidation or otherwise.’”

Avatex, 715 A.2d at 854–55. The material distinction that led to the result in Avatex

is absent here. As Plaintiff admits, “this same rule [i.e., the Warner line of cases]

applies outside the merger context. No one disputes that the logic can extend beyond

mergers.”40

Plaintiff’s argument is, therefore, reduced to an invocation of the implied

covenant of good faith and fair dealing. Plaintiff’s implied covenant argument has

been addressed statutorily. Clearly mindful of the risk of the statutory amendment

to the unanimity requirement circumventing Avatex provisions, the legislature added

Section 266(k) to the statute in conjunction with lowering the voting requirements.

Given that the statute mandates the application of pre-amendment language

restricting mergers and consolidations to conversions as well, there is no principled

reason to imply a restriction on conversions that does not apply to mergers or

consolidations.

Therefore, it is apparent from the doctrinal substance of Warner and its

progeny, the history of Section 266, and the text of Section 266(k) that the Warner

40
Pl.’s Reply & Answering Br. 27 (alteration in original) (footnote and internal quotation
marks omitted); see, e.g., Mary’s Gone Crackers, 2012 WL 4479999, at *8 (“Just as the
Court concluded that the stock conversion and subsequent certificate amendment in
Warner were separate events, I consider the conversion and the Charter amendment here
to have been separate and independent occurrences.”).

41
doctrine should be applied with equal force to conversions and that Article X does

not impliedly cover actions under Section 266.

e. There is no ambiguity, so the doctrine of contra
proferentem is inapplicable.

Finally, Plaintiff contends that the court should consider the application of the

doctrine of contra proferentem and resolve any ambiguity in Article X in favor of

Plaintiff and impose a Supermajority vote requirement for the Conversion. See

Shiftan v. Morgan Joseph Hldgs., Inc., 57 A.3d 928, 935–36 (Del. Ch. 2012) (“Our

Supreme Court has frequently invoked this doctrine of contra proferentem to resolve

ambiguities about the rights of investors in the governing instruments of business

entities.”). The presence of ambiguity is, however, a necessary prerequisite for the

doctrine’s application, and the Court has made clear that it “appl[ies] the contra

proferentem principle [] only as a last resort [where] the language of the certificate

presents a hopeless ambiguity, particularly when alternative formulations indicate

that these provisions could easily have been made clear.” Kaiser Aluminum Corp.

v. Matheson, 681 A.2d 392, 399 (Del. 1996). That is not the case here, and the

doctrine of contra proferentem is inapplicable. See Avatex, 715 A.2d at 853

(concluding that contra proferentem “is not applicable here because there is no

ambiguity”).

* * *

42
In sum, based on Warner, Avatex, and their progeny, the court concludes that

corporate drafters seeking to exalt substance over form, or otherwise displace the

doctrine of independent legal significance and expand certificate language across

sections of the DGCL, must do so with clear, express language. Such language is

not employed in Article X, so its scope falls only within the form it clearly

references: certificate amendments under Section 242. This is just as true with

respect to conversions under Section 266 as it is with respect to mergers and

consolidations, particularly in light of Section 266(k). The Conversion is to be

effected under Section 266, not Section 242, so Article X is inapplicable. Plaintiff

does not contend that any other language in the Certificate imposes a different

standard. Therefore, Section 266’s default majority vote applies.

Accordingly, Plaintiff’s motion for summary judgment on Counts I and II

must be denied, and Defendants’ motion for summary judgment on Counts I and II

must be granted.

D. Entry of Partial Final Judgment Under Rule 54(b) with Respect to
Counts I and II is Warranted
Both sides have requested that the court enter a partial final judgment pursuant

to Court of Chancery Rule 54(b) so as to allow for an immediate appeal on Counts I

and II. Rule 54(b) provides, in pertinent part:

When more than 1 claim for relief is presented in an action, whether as
a claim, counterclaim, cross-claim, or third-party claim, the Court may
direct the entry of a final judgment upon 1 or more but fewer than all

43
of the claims or parties only upon an express determination that there is
not just reason for delay and upon an express direction for the entry of
judgment.

“Rule 54(b) is an exception to the well-established policy against piecemeal

appeals, and does not contemplate the entry of final judgment absent a showing of

some degree of hardship or injustice through delay which would be alleviated by

immediate appeal.” Zimmerman v. Home Shopping Network, Inc., 1990 WL

140890, at *1 (Del. Ch. Sept. 25, 1990) (internal quotation marks omitted). This

court’s authority under Rule 54(b) has been characterized as a “discretionary power

to afford a remedy in the infrequent harsh case.” In re Tri-Star Pictures, Inc., Litig.,

1989 WL 112740, at *1 (Del. Ch. Sept. 26, 1989) (internal quotation marks omitted).

All of the elements of Rule 54(b) are satisfied in this case, and entry of a

partial final judgment is warranted. This action involves multiple claims, not all of

which are resolved in this ruling: in addition to the two claims adjudicated on the

Cross-Motions, the Amended Complaint asserts two further claims alleging that the

Director Defendants breached their fiduciary duties in approving the Conversion.

The court has, on the present Cross-Motions, adjudicated and finally decided the

claims alleging that the Conversion requires Supermajority approval and that the

Proxy discloses the incorrect voting requirement for the Conversion. There is no

just reason for delaying an appeal as to whether the Conversion is subject to Article

X. The question presented on the Cross-Motions and resolved in this opinion is one

44
purely of law, upon which no further factual development would have an effect, and

its resolution in advance of the November 14, 2024 Special Meeting is critical. This

is the same procedural vehicle by which this court’s decisions in Avatex and FLS

advanced to the Supreme Court. See Avatex, 715 A.2d at 845 n.4 (noting that this

court certified its ruling as a final judgment under Rule 54(b)); FLS, 1992 WL

345453, at *8 (directing entry of final judgment for defendants on the class-vote

claim pursuant to Rule 54(b)). Therefore, the court will enter a partial final judgment

with respect to Counts I and II.

III. CONCLUSION

In conclusion, Article X does not apply to the Conversion and Defendants

have correctly disclosed that only a majority vote is necessary. Accordingly,

Plaintiff’s motion for summary judgment on Counts I and II is denied, and

Defendants’ motion for summary judgment on Counts I and II is granted.

Pursuant to Rule 54(b), the court expressly finds that there is no just reason

for delay and directs the entry of partial final judgment for the Defendants with

respect to Counts I and II. The court, having finally decided Counts I and II, denies

Plaintiff’s outstanding motion for a preliminary injunction as moot.

45