In Frechter v. Zier, C.A. No. 12038-VCG,
2017 WL 345142 (Del. Ch. Jan. 24, 2017) (Glasscock, V.C.), the Delaware Court of Chancery granted
plaintiff's motion for summary judgment on a declaratory relief
claim and held that 8 Del. C. § 141(k) prohibits company
bylaws from requiring more than a majority vote to remove directors
from a company's board. The Frechter decision confirms
that company bylaws may not impose requirements or implement
procedures that conflict with 8 Del. C. § 141(k).
Section 141(k) of the Delaware General Corporation Law
("DGCL") provides that that any director "may be
removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors"
subject to certain exceptions. In January 2016, the Nutrisystem
board amended the bylaw governing the removal of company directors
to provide that no director could be removed from office except by
the affirmative vote of no less than sixty-six and two-thirds
percent of the voting power of all outstanding shares.
Plaintiff filed a putative class action complaint contending
that (1) the directors had breached their duty of loyalty by
enacting an unlawful bylaw and (2) he was entitled to a declaratory
judgment finding that the removal provision was in violation of 8
Del. C. § 141(k). Defendants moved to dismiss, and plaintiff
moved for summary judgment. Plaintiff represented that he would not
pursue his breach of fiduciary duty claim if the Court found in his
favor on the declaratory judgment.
The Court granted plaintiff's motion for summary judgment as
to the declaratory judgment claim. The Court noted that the DGCL is
an enabling statute which allows bylaws to contain any provision
"not inconsistent with law or with the certificate of
incorporation, relating to the business of the corporation, the
conduct of its affairs, and its rights or powers or the rights or
power of its stockholders." Section 141(k) of the DGCL
provides that that any director "may be removed, with or
without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors" subject to
The Court held that Nutrisystem's removal provision was
inconsistent with the plain language of Section 141(k). In so
holding, the Court rejected defendants' argument that the
removal provision was permissible because 8 Del. C. § 216 permits corporate bylaws
to specify the number of votes required for the transaction of
corporate business "[s]ubject to this chapter." While
defendants conceded that the specific provisions of Section 141(k)
trumped Section 216's general language, they argued that
Section 141(k) was merely permissive, not mandatory, due to the
fact that it did not use the words "shall" or
"must." The Court found this was an "unnatural"
reading of the statute that would render it an effective nullity.
The Court also noted that defendants' reading of Section 141(k)
also was inconsistent with the recent opinion in In re VAALCO
Energy Inc. Stockholder Litigation, C.A. No. 11775-VCL (Dec.
21, 2015) (TRANSCRIPT), where the Court held that the language of
Section 141(k) providing that directors "may" be removed
with or without cause prohibits bylaws requiring that removal be
for cause. The court found that Section 141(k)
"unambiguously" confers the power to remove directors on
a majority of votes, and that any rule to the contrary is
Frechter confirms that companies may not adopt bylaws
that conflict with the provisions of Section 141(k), and that the
Chancery Court will view skeptically actions by boards of directors
that appear to impair stockholder voting rights.
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