Journal of Business & Technology Law


CaseSoutheastern Pennsylvania Transportation Authority v. Volgenau
Court, StateCourt of Chancery, Delaware
Date of Decision, Type of Case8/31/2012, Ultra Vires
Case NumberNo. 6354-VCN
CitationSEPTA v. Volgenau, 2012 Del. Ch. LEXIS 206 (Del. Ch. Aug. 31, 2012).
  
Facts Of CaseDefendant SRA International, Inc. (SRA) merged with defendant Providence Equity Partners LLC (Providence). The proceeds of the merger were not evenly distributed among SRA’s stockholders which was required under the company’s Certificate of Incorporation. The plaintiffs – former SRA shareholders - consider the Certificate of Incorporation a contract and thus SRA’s board of directors approval of the merger was a breach of contract rendering the merger invalid and voidable. Furthermore, the plaintiffs allege that since the board of directors breached their fiduciary duty of loyalty and care to SRA’s public stockholders by unequally distributing the proceeds of the merger further rendering the merger voidable. The defendants moved for judgment of the pleadings arguing that 8 Del. C. § 124 requires shareholders to seek an injunction against a purportedly ultra vires action to challenge it and since the plaintiffs are not, as a matter of law their claim should be dismissed.
  
HoldingThe court determined that according to 8 Del. C. § 124 - which was enacted to protect the sanctity of contracts - there are only three instances in which a corporation’s actions may be challenged and set aside when they are ultra vires. The court went on to say however, that while the act may not be challenged outside of the three specific instances, it may be the basis of a shareholder suit against the individual directors who approved the act. The Court dismissed the contract claim but allowed the breach of fiduciary claim to proceed.
  
Court ReasoningThe court reasoned that 8 Del. C. § 124 limited challenges to allegedly ultra vires actions to three situations: when brought by shareholders who seek to enjoin the act, when brought by the corporation, or when brought by the Attorney General and that since the plaintiffs were not seeking an injunction their claim could not proceed. Therefore the merger is effectively valid. However, the court went on to say that while the shareholders cannot challenge SRA’s capacity to enter the merger, they may still challenge the conduct of SRA’s fiduciaries in approving a merger that violated the company’s Certificate of Incorporation. The court determined that the plaintiffs may do so through their claim for breach of fiduciary duty.

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