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Washington Law Review

Abstract

In Seibert v. Gulton Industries, Inc., the Delaware Supreme Court affirmed the dismissal of a complaint challenging the legality of a conditional supermajority amendment to Gulton Industries' certificate of incorporation. The challenged amendment required the affirmative vote of eighty percent of Gulton's shareholders to approve a proposed takeover of Gulton by any person or entity that had acquired five percent or more of Gulton's shares prior to its proposed takeover. The eighty percent vote was not required if Gulton's directors had approved the proposed takeover prior to the other entity's acquisition of a five percent interest in Gulton. In such cases a simple majority sufficed. Thus, the amendment gave Gulton's directors discretion to invoke the supermajority requirement for takeover attempts they opposed. The chancellor's decision to dismiss plaintiff's complaint was consistent with the enabling philosophy that permeates the relevant Delaware statutory and case law. Nevertheless, the decision failed to discuss the practical implications of enacting conditional supermajority requirements. Specifically, the chancellor did not consider whether Gulton's conditional supermajority provision would adequately protect shareholders' interests to the extent they conflict with management's interests. By dismissing the complaint, the Seibert court failed to consider whether the use of conditional supermajority provisions should be circumscribed by the courts in order to make such measures responsive to the needs of shareholders. This note examines alternatives to dismissal of the plaintiff's complaint and recommends that corporate management be required to disclose the purposes and effects of conditional supermajority provisions when proposing them to shareholders for adoption.

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