Hilton Hotels Corp. v. ITT Corp.
1997 WL 222236, 1997 U.S. Dist. LEXIS 5959, 962 F. Supp. 1309 (1997)
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Rule of Law:
Under Nevada law, a corporate board of directors may delay an annual shareholder meeting beyond a twelve-month interval, provided it is held within the statutory maximum of eighteen months, and such a delay does not constitute a breach of fiduciary duty if its primary purpose is not to disenfranchise shareholders but rather to give the board time to respond to a hostile takeover bid.
Facts:
- Hilton Hotels Corporation ('Hilton') initiated a public tender offer to acquire ITT Corporation ('ITT').
- As part of its takeover strategy, Hilton intended to launch a proxy contest to replace ITT's incumbent board of directors at the next annual shareholder meeting.
- ITT's previous annual meeting had been held in May of the preceding year.
- ITT's board of directors, in response to Hilton's hostile bid, did not schedule the company's 1997 annual meeting for May.
- ITT is incorporated under the laws of Nevada.
Procedural Posture:
- Plaintiffs Hilton Hotels Corporation and HLT Corporation ('Hilton') filed a Motion for a Preliminary Injunction in the U.S. District Court for the District of Nevada.
- The motion sought a mandatory injunction to compel Defendant ITT Corporation ('ITT') to conduct its annual shareholder meeting in May 1997.
- Counsel for a plaintiff shareholder class in a related action was permitted to present oral argument supporting Hilton's motion.
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Issue:
Does a corporate board of directors breach its fiduciary duties to shareholders by failing to schedule an annual meeting at the request of a hostile bidder, when no meeting date has been set and the delay falls within the 18-month statutory limit for holding such a meeting?
Opinions:
Majority - Pro, District Judge
No. A corporate board does not breach its fiduciary duties by delaying an annual meeting under these circumstances. The court reasoned that Nevada law (NRS 78.345) implicitly allows a corporation up to 18 months between annual meetings by providing a shareholder remedy only after that period has elapsed; the term 'annual' distinguishes regular from special meetings, but does not mandate a 12-month cycle. Furthermore, the board's action did not constitute an inequitable manipulation designed to impede the shareholder franchise, as no meeting had been set and no proxies had been solicited. Distinguishing this case from precedents like Blasius, the court found it analogous to Stahl v. Apple Bancorp, where deferring an unscheduled meeting to evaluate a hostile bid was a permissible exercise of the board's discretion to manage the corporation's affairs and resist hostile takeovers.
Analysis:
This decision clarifies the scope of a board's discretion in timing annual meetings as a defensive measure against hostile takeovers under Nevada law. It reinforces the distinction between impermissibly interfering with an active or scheduled shareholder vote (the Blasius standard) and permissibly delaying the scheduling of a meeting to formulate a corporate response (the Stahl standard). This gives incumbent boards a significant tactical advantage, allowing them to use the statutory 18-month window to explore alternatives, find a 'white knight' buyer, or persuade shareholders against the hostile offer without being forced into an immediate proxy fight.
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