So states VC Leo Strine in Fletcher Int'l v. Ion Geophysical Corp. Edward McNally explains that:
Fletcher International LTD v. Ion Geophysical Corp., C.A. 5109-VCS (March 29, 2011)
This is another in the line of decisions that stress that preferred stockholder rights are what is set out in the certificate of incorporation and nothing more. Thus, if the preferred stockholders bargain for the right to consent to the sale of stock by any subsidiary, then they do not also have the right to vote on the sale of subsidiary stock by the parent.
Specifically Strine opined that:
In Delaware, a preferred stockholder’s rights “are contractual in nature.”27 Where the language governing the preferred stockholder’s rights is “clear and unambiguous, it must be given its plain meaning.”28 Furthermore, such rights “are to be strictly construed and must be expressly contained in the relevant certificates.”29
27 In re Appraisal of Metromedia Int’l Group, Inc., 971 A.2d 893, 899 (Del. Ch. 2009) (citing Matulich v. Aegis Commc’ns Group, Inc., 942 A.2d 596, 600 (Del. 2008)).
28 Benihana of Tokyo, Inc. v. Benihana, Inc., 906 A.2d 114, 120 (Del. 2006) (citing Northwestern Nat’l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996)).
29 Waggoner v. Laster, 581 A.2d 1127, 1134 (Del. 1990). See also Baron v. Allied Artists Pictures Corp., 337 A.2d 653, 657 (Del. Ch. 1975).
What's interesting to me is that no where in the opinion does the dread word "Jedwab" appear. A few years ago, I wrote a very long blog post on the rights of preferred stockholders, in which I discussed former Delaware Chancellor Allen's opinion in Jedwab v. MGM Grand Hotels, Inc., 509 A.2d 584 (Del. Ch. 1986), which held that directors owe fiduciary duties to preferred stockholders as well as common stockholders where the right claimed by the preferred “is not to a preference as against the common stock but rather a right shared equally with the common.” Presumably, since the specific claims at issue did not allege a breach of fiduciary duty, Strine did not feel it necessary to address that issue. Still, it's at least a little curious that the scholarly Strine--who frequently offers up interesting dicta in his many long textual footnotes (of which this opinion has several) did not even mention the Jedwab issue.
Is it too much to hope that Delaware courts may finally be waking up to the myriad of ways in which Jedwab is inconsistent with Delaware Supreme Court precedent and, moreover, just plain bad policy?
