Settled: December 21, 2015
VAALCO Energy challenged their shareholders’ fundamental right to replace board members with an unlawful charter and bylaw provision. In less than two weeks, in the midst of the holiday season, Labaton Sucharow, as co-lead counsel, established important regarding shareholders’ ability to remove and replace board members. The significance of this ruling also lies in its response to a frequently asked, but before now unanswered, question on shareholders’ right to remove directors.
In December 2015, a group of activist investors sought to replace half of VAALCO’s board of directors. In response, VAALCO asserted that the stockholders lacked the ability to remove the members of the board except for cause, as stated in the company’s charter and bylaws. Under the Delaware General Corporation Law (DGCL), a majority of stockholders may remove directors of a Delaware corporation with or without cause, unless the company has a staggered board or classified voting. VAALCO had neither a staggered board nor classified voting. Shareholders alleged that VAALCO’s charter and bylaws violated the DGCL.
In less than two weeks, we secured full relief on our claims after the Delaware Court of Chancery’s bench ruling, granting our motion for summary judgment and invalidating VAALCO’s charter and bylaw provisions. In addition to vindicating VAALCO stockholders’ fundamental removal rights, the action also led to an immediate settlement between the activist investors, which settlement provided for, among other things, the replacement of several of VAALCO’s incumbent directors.
After this favorable ruling, white shoe defense firms immediately began advising their clients to amend their charters and bylaws to the extent they contained similar shareholder-unfriendly provisions. As reported by Bloomberg in February 2016, our victory “spur[red] a rush by Delaware corporations to amend their director-removal provisions,” with tens of companies amending their charters and bylaws within less than two months of the Court of Chancery’s ruling.
The case is In re Vaalco Energy Inc. Consolidated Stockholder Litigation, No. 11776, in the Delaware Court of Chancery.