Portnoy v. Cryo-Cell International, Inc.

940 A.2d. 43 (2008)

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Nature of the Case

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Facts

Filipowski, a stockholder, used management's fear of replacement to strike a deal for himself to be included in the management slate for the 2007 annual meeting. Another stockholder, Portnoy (P), filed a dissident slate. Cryo-Cell's chief executive officer, Walton, (D) ginned up a plan with Filipowski to win the proxy contest. Walton would act as a 'matchmaker' by finding stockholders willing to sell their shares to Filipowski. In exchange for this alliance, Walton promised Filipowski that if their 'Management Slate' prevailed, Cryo-Cell's board would, using their power as corporate directors, expand the board to add another seat that Filipowski's designee would fill. This plan was not disclosed to the Cryo-Cell stockholders, who did not realize that if they voted for management, they would be electing a seven, not six-member board, with two, not one, Filipowski representatives. Walton used a combination of threats and inducements to secure the vote of Saneron CCEL. Cryo-Cell owned 38% of Saneron's shares and that Saneron depended on Cryo-Cell's laboratory space to conduct many of its own operations. Walton did not want to close the polls and count the vote when the scheduled presentations at the meeting were over. She had members of her management team make long, unscheduled presentations to give her side more time to gather votes and ensure that they had locked in two key blocs. She overruled motions to close the polls. At 2 p.m., Walton declared a very late lunch break, supposedly in response to a request made much earlier. Walton desired the break so that she would have more time to seek votes and so that she could confirm that the major blockholders had switched their votes to favor the Management Slate. Only after confirming the switches did Walton resume the meeting at approximately 4:45 p.m., declare the polls closed, and have the vote counted. The Management Slate squeaked out a victory by an extremely small margin. P sued. P brought this claim under 8 Del. C. § 225 challenging the seating of the Management Slate. P wants the election results overturned because the Management Slate would not have been elected but for the alleged breaches of duty that occurred.