Account v. Hilton Hotels Corp.
780 A.2d 245, 2001 Del. LEXIS 386, 2001 WL 1047417 (2001)
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Rule of Law:
Under the doctrine of stare decisis, a Delaware corporation's board of directors may unilaterally adopt a shareholder rights plan (poison pill), and its enforceability does not require the express consent of individual shareholders, even those who object.
Facts:
- Hilton Hotels Corporation, a Delaware corporation, adopted a shareholder rights plan in 1988, and upon its expiration, adopted a second rights plan in 1998.
- On November 29, 1999, Hilton adopted a new rights plan (the “Rights Agreement”) in connection with a merger, which provided for one preferred share purchase right to be attached to each share of Hilton common stock.
- Hilton informed its shareholders by letter on November 30, 1999, that no action was required, and the rights would automatically attach to their shares and trade with them.
- On January 18, 2000, Leonard Loventhal Account (the “Trust”), a Hilton common stock holder, informed Hilton that it refused to accept the rights and did not agree to be treated as an owner of the rights or have them attached to its shares.
- On February 26, 2000, the Trust received a stock certificate for its Hilton shares with a legend incorporating the terms of the Rights Plan, indicating that it evidenced rights attached to the shares.
Procedural Posture:
- The Trust filed an individual and class action suit in the Court of Chancery challenging five counts related to Hilton's Rights Agreement.
- Hilton moved to dismiss the complaint for failure to state a claim upon which relief could be granted.
- The Court of Chancery granted Hilton's motion to dismiss, ruling that the Trust's claims were without merit and unsupportable under settled Delaware law, barred by stare decisis.
- The Court of Chancery deemed the challenge to Section 31 of the Rights Plan moot, given Hilton's concession regarding the provision's limited scope.
- The Trust, as appellant, appealed the Court of Chancery's dismissal to the Supreme Court of Delaware.
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Issue:
Does the unilateral adoption of a shareholder rights plan by a board of directors require the express consent of individual shareholders, or is such a plan enforceable against objecting shareholders under established Delaware corporate law?
Opinions:
Majority - Walsh, Justice
No, the unilateral adoption of a shareholder rights plan by a board of directors does not require the express consent of individual shareholders, as this principle is firmly established by controlling Delaware precedent. The Supreme Court of Delaware affirmed the Court of Chancery's dismissal, holding that the Trust's challenge was barred by the doctrine of stare decisis, primarily relying on Moran v. Household Int’l, Inc., which established a board's authority to adopt such plans. The Court reasoned that Moran found sufficient authority for rights plans under 8 Del.C. §§ 157 and 141(a), and implicitly denied objecting shareholders the right to oppose implementation, as requiring shareholder approval would render the board's recognized power meaningless. The Court explicitly stated that recognizing the Trust's contractual claim for shareholder consent would 'emasculate' the basic holding of Moran. Regarding challenges to specific implementing provisions (legending, transfer restrictions, alteration of stock), the Court found these either directly precluded by Moran or permissible under the statutory authority recognized in Moran, even if not explicitly decided by stare decisis. Finally, the challenge to an exculpatory provision in Section 31 of the Rights Agreement was dismissed as moot because Hilton conceded that the provision was not intended to relieve directors of their fiduciary duties to shareholders, but only applied to claims by rights holders as such.
Analysis:
This case strongly reaffirms the established legal landscape regarding 'poison pill' defenses in Delaware corporate law. It solidifies the principle that a board of directors, acting within its fiduciary duties, has significant unilateral authority to implement shareholder rights plans without requiring individual shareholder consent. The decision underscores the powerful role of stare decisis in maintaining stability and predictability in corporate governance, making it difficult for shareholders to re-litigate issues already decided by the state's highest court. This limits avenues for shareholder challenges to well-established takeover defenses and reinforces the board's prerogative in managing corporate strategy against hostile takeovers.
