Jones Apparel Group, Inc. v. Maxwell Shoe Co.
2004 WL 5366716, 883 A.2d 837, 2004 Del. Ch. LEXIS 74 (2004)
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Rule of Law:
Under the Delaware General Corporation Law, a provision in a certificate of incorporation may limit or eliminate a discretionary power granted to the board of directors by statute, such as the power to set a record date, provided the provision is not contrary to a mandatory statutory rule or a fundamental public policy of the state.
Facts:
- Maxwell Shoe Company, Inc.'s certificate of incorporation, in Article VII, mandated that the record date for determining stockholders entitled to act by written consent 'shall be the first date on which a signed written consent...is delivered to the corporation.'
- In November 2003, Jones Apparel Group, Inc. approached Maxwell about a potential acquisition, but negotiations were unsuccessful.
- On February 25, 2004, Jones publicly announced a proposal to acquire all of Maxwell's shares for $20 per share.
- On March 23, 2004, after Maxwell's board rejected the offer, Jones commenced a tender offer and announced it was considering a consent solicitation to remove Maxwell's board of directors.
- On March 25, 2004, Maxwell's board of directors set a record date of March 25, 2004, for Jones's potential consent solicitation.
- At the time the Maxwell board set the record date, it had not received any written consents from stockholders related to Jones's solicitation.
- On April 21, 2004, Jones delivered the first executed written consent to Maxwell.
Procedural Posture:
- Jones Apparel Group, Inc. filed suit against Maxwell Shoe Company, Inc. in the Delaware Court of Chancery, the court of first instance.
- Jones's complaint alleged that the Maxwell board violated Article VII of Maxwell's charter by setting a record date for a consent solicitation before any written consent was delivered.
- Maxwell filed a motion to dismiss the complaint under Court of Chancery Rule 12(b)(6).
- Jones filed a cross-motion for summary judgment under Court of Chancery Rule 56(c).
- The Court of Chancery heard argument and issued a decision on both pending motions.
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Issue:
Does a corporate charter provision that removes the board of directors' statutory discretion to set a record date for a stockholder consent solicitation, instead mandating that the record date shall be the date the first consent is delivered, violate the Delaware General Corporation Law?
Opinions:
Majority - Vice Chancellor Strine
No, a corporate charter provision that removes the board's statutory discretion to set a record date does not violate the Delaware General Corporation Law because DGCL §§ 102(b)(1) and 141(a) grant broad authority for private ordering through the certificate of incorporation. The court reasoned first that the plain, mandatory language of Article VII of Maxwell's charter ('shall be') established an exclusive method for setting the record date, leaving no room for the board to exercise its discretion. Second, the court held this provision was a valid exercise of the private ordering authority granted by DGCL §§ 102(b)(1) and 141(a), which permit charter provisions to limit director powers so long as they are not 'contrary to the laws of this State.' The court rejected Maxwell’s argument that a statutory power cannot be limited unless the statute contains 'magic words' like 'unless otherwise provided in the certificate of incorporation,' finding such an interpretation would nullify the broad enabling purpose of §§ 102(b)(1) and 141(a). Applying a context-specific analysis, the court concluded that the charter provision did not contravene any fundamental public policy, as the power to set a record date is not an inalienable, core duty of a board, and the charter merely adopted one of the default procedures already present in the statute (§ 213(b)) as the exclusive rule.
Analysis:
This decision strongly affirms the principle of private ordering in Delaware corporate law, emphasizing that the certificate of incorporation is the primary vehicle for customizing corporate governance and limiting the default powers of the board. By rejecting a rigid, 'magic words' approach to statutory interpretation, the court established a more flexible, context-specific framework for determining whether a charter provision conflicts with Delaware law. The ruling clarifies that a charter can validly eliminate a specific, non-fundamental statutory power of the board, thereby empowering stockholders and founders to design bespoke governance structures that deviate from statutory defaults, which has significant implications for both corporate planners and parties in control contests.
