Daniel v. Hawkins ( 2023 )

IN THE SUPREME COURT OF THE STATE OF DELAWARE
BRADLEY DANIEL, an individual, and §
MEDAPPROACH HOLDINGS, INC., a §
Delaware corporation, §
§ No. 184, 2022
Defendants Below, §
Appellants, §
§ Court Below: Court of Chancery
v. § of the State of Delaware
§
SHARON HAWKINS, individually and §
derivatively on behalf of § C.A. No. 2021-0453
MEDAPPROACH, L.P., §
§
Plaintiff Below, §
Appellee. §
Submitted: November 2, 2022
Decided: January 6, 2023
Before VALIHURA, VAUGHN, and TRAYNOR, Justices.
Upon appeal from the Court of Chancery. AFFIRMED.
David Teklits, Esquire (argued), Sara Barry, Esquire, Morris, Nichols, Arsht & Tunnell
LLP, Wilmington, Delaware; Of Counsel: Jeffrey Alan Simes, Esquire, Goodwin Proctor
LLP, New York, New York for Appellants.
Richard I.G. Jones, Esquire (argued), John G. Harris, Esquire, Berger Harris LLP,
Wilmington, Delaware for Appellee.
VALIHURA, Justice:
Following a trial, on April 4, 2022, the Court of Chancery entered judgment in favor
of appellee Sharon Hawkins (“Mrs. Hawkins” or “Appellee”) on her request for a
declaration that the irrevocable proxy which provides appellant W. Bradley Daniel
(“Daniel”)1 with voting power over all 100 shares of N.D. Management, Inc. (“Danco GP”)
(the “Irrevocable Proxy”), does not bind a subsequent owner of such Danco GP shares.
The Court of Chancery also held that an addendum to the Irrevocable Proxy does not
obligate the current owner of the Danco GP shares, MedApproach, L.P. (the “Partnership”),
to demand that the buyer in a sale to an unaffiliated third party bind itself to the Irrevocable
Proxy.
The Irrevocable Proxy was executed on February 5, 1997 by the then-owner of all
100 shares of issued and outstanding stock of Danco GP. It granted three individuals,
including Daniel, the power to vote the Proxy Shares (defined below). On January 1, 1999,
as part of an internal restructuring in which the Partnership was created and acquired 75%
of the Proxy Shares, the Partnership executed an Agreement To Be Bound By Irrevocable
Proxy and Power Of Attorney, binding itself to the Irrevocable Proxy.2
The Partnership dissolved on February 28, 2021, and is now in the process of
winding up. As its principal asset, it owns 75% of the issued and outstanding stock of
Danco GP (the “Majority Shares”). Appellee currently owns 88% of the Partnership and
1
MedApproach Holdings, Inc., referred to herein as “Holdings” is also named as a defendant.
Daniel owns 100% of Holdings.
2
App. to Opening Br. at A370 (Agreement To Be Bound By Irrevocable Proxy and Power of
Attorney).
2
desires to purchase the Majority Shares in the winding up process. But for the Irrevocable
Proxy, the owner of the Majority Shares would control both Danco GP and the entity
managed by Danco GP, Danco LP (defined below).
Daniel appeals the Court of Chancery’s judgment that the Irrevocable Proxy does
not run with the Majority Shares.3 He argues that the Court of Chancery committed the
following legal errors: (1) first, rather than interpret and apply the plain language of the
Irrevocable Proxy as written, the Court of Chancery erred in relying on the Restatement
(Third) of Agency, which was not adopted until nearly a decade after the parties entered
into the Irrevocable Proxy, (2) second, it read additional language into the Irrevocable
Proxy in order to support its finding that the broad “catch-all” language that the parties
included to prevent termination of the Irrevocable Proxy did not encompass a sale of the
shares, and (3) third, it did not give effect to all of the terms of the Irrevocable Proxy and
it improperly limited the assignment clause of the Irrevocable Proxy so as not to bind
assigns of the stockholder.
For the reasons set forth below, we AFFIRM the judgment of the Court of
Chancery.
3
Daniel does not challenge the Court of Chancery’s conclusion that the Addendum does not
obligate the Partnership to demand that the buyer in a sale to an unaffiliated third party bind itself
to the Irrevocable Proxy.
3
I. FACTUAL AND PROCEDURAL BACKGROUND4
A. The Founding of the Project
Population Council, Inc. (“Popco”) is an international not-for-profit corporation
focused on family planning. In 1994, a French pharmaceutical company granted Popco a
license to manufacture, market, and distribute the oral abortion drug RU-486, more
commonly known as mifepristone. Once granted the license, Popco began a search for an
investor to manufacture and distribute the drug for domestic and international use (the
“Project”). In what would turn out to be an unfortunate choice, Popco selected Joseph D.
Pike (“Pike”), who it had previously worked with on similar ventures, to undertake the
Project.
Pike formed a complex entity structure to consummate the venture, placing himself
at the helm. He formed Danco Laboratories, Inc., a Cayman Islands company (“Danco
Labs”) as the main operating entity. Danco Labs subsequently domesticated into a
Delaware limited liability company and is now known as Danco Laboratories, LLC.
Through an affiliate, Popco granted an exclusive sublicense to Danco Labs to implement
the Project in the United States.5 Ultimately, the outcome of this litigation will determine
the control arrangement of Danco Labs.
Pike then formed Neogen Investors L.P., a California limited partnership. Neogen
Investors L.P. is now known as Danco Investors Group, L.P. (“Danco LP”). Danco LP
4
Unless otherwise noted, facts are taken from the Court of Chancery’s memorandum opinion. See
Hawkins v. Daniel (Chancery Opinion), 273 A.3d 792 (Del. Ch. 2022).
5
App. to Opening Br. at A132 (Offering Memorandum at 1).
4
owns 100% of Danco Labs and was formed as a holding company to raise equity financing
for the Project. Pike’s goal was to solicit investors to invest in Danco Labs by purchasing
limited partnership interests in Danco LP.
Lastly, Pike formed N.D. Management, Inc., a Cayman Islands company (“Danco
GP”) as Danco LP’s general partner. Danco GP has since domesticated into a Delaware
corporation. Initially, Pike owned 100% of Danco GP, which consists of 100 shares of
issued and outstanding stock. Because Danco GP controlled Danco LP as its general
partner, and Danco LP owns 100% of Danco Labs, Pike effectively controlled Danco Labs
through his 100% ownership of Danco GP. The same remains true today: whoever
controls Danco GP controls Danco Labs and the Project.
Pike then began raising money for the Project by selling limited partnership interests
in Danco LP. From about November 1995 to February 1997, Pike raised approximately
$13.35 million.6 One of Pike’s primary investors was appellant Daniel. Daniel invested
in Danco LP through his newly formed entity MedApproach L.P., a Tennessee limited
partnership (“Old MedApproach”), which he caused to purchase limited partnership
interests in Danco LP. At the time, Daniel owned Old MedApproach through its general
partner, Bio-Pharm Investments, Inc., a Tennessee corporation. Bio-Pharm Investments,
Inc. has since become defendant below-appellant Med Approach Holdings, Inc., a
Delaware corporation (“Holdings”). Daniel owns 100% of Holdings. In 1999, Old
6
Id. at A135 (Offering Memorandum at 4).
5
MedApproach was restructured and divided into three separate entities, one of which is the
Partnership.
Around this time, Daniel was introduced to Mrs. Hawkins’ husband, Gregory
Hawkins (“Mr. Hawkins”) through a family connection who suggested that the two discuss
the Project. After discussing the opportunity with Daniel, Mr. Hawkins decided to invest.
Instead of purchasing limited partnership interests directly in Danco LP, Mr. Hawkins
invested by purchasing limited partnership interests in Daniel’s entity, Old MedApproach.
Old MedApproach then used the money invested by Mr. Hawkins to purchase limited
partnership interests in Danco LP. After investing $1.5 million, Mr. Hawkins owned
approximately 75% of the limited partnership interests in Old MedApproach. Three years
later, Mr. Hawkins transferred his interest in Old MedApproach to his wife, appellee here,
due to personal financial difficulties. As between Mr. Hawkins and Mrs. Hawkins, Mr.
Hawkins was substantively involved in the Project at the relevant time period and, as such,
gave the substantive testimony before the Court of Chancery.
B. The Downfall of Joe Pike
In May 1996, Pike pled guilty to misdemeanor forgery charges in North Carolina
arising out of a 1985 transaction. He was disbarred from practicing law in the State of
North Carolina and faced criminal penalties. Pike’s legal trouble was news to Popco. Pike
had failed to disclose any legal difficulties or the underlying events to both Popco and
investors in Danco LP. Further, Popco believed that Pike had misled investors about
potential uses of their investment and the payment of fees, and various other aspects of the
Project. To avoid jeopardizing the Project, Popco sought to extract Pike from the Project
6
as quickly as possible. In November 1996, Popco filed a complaint in New York state
court requesting that the court remove Pike from his leadership roles and rescind his
interest in the Project.7 It also threatened to cancel the sublicense it had granted to Danco
Labs. On December 11, 1996, in the face of this existential threat, Pike, Project investors,
and Popco met to determine if there was a path forward.
Pike, Popco, and the investors in Danco LP were all represented at the meeting. The
Project investors were represented by five individuals selected from among their ranks:
Daniel, Brian Freeman, Jeff Rush, Richard Cusac, and William Elkus (the “LP
Representatives”). As representatives, they would present any agreement reached with
Pike and Popco to the remaining investors for their review and approval. 8
Freeman and Rush owned limited partner interests directly in Danco LP. They also
had solicited additional investors for the Project and served as advisors to Pike. Cusac and
Elkus owned limited partner interests directly in Danco LP as well, but the record is limited
as to any further involvement they may have had in the Project.9
Daniel represented Old MedApproach at the meeting. Having chosen not to attend
the meeting due to the political climate and controversy surrounding mifepristone, Mr.
Hawkins relied on Daniel for news of the negotiations with Pike and Popco. Daniel
communicated regularly with Mr. Hawkins, sought his input, and kept him apprised of
developments.
7
Id. at A205 (Offering Memorandum at 75).
8
Chancery Opinion, 273 A.3d at 799.
9
Id.
7
At the negotiating table, Popco put forth two demands. First, Popco reiterated the
demand it made in its November suit: It wanted to expel Pike from any control or
management of the Project. Because Pike held his interest in Danco LP through Danco
GP, this would mean, among other things, Pike would have to sell at least a majority of his
100 shares of Danco GP and relinquish the voting rights to all 100 shares. Second, Popco
wanted to ensure that existing Danco LP investors would have the opportunity to rescind
their investment. Popco feared that the failure to disclose Pike’s legal trouble to investors
and certain actions taken by Pike constituted a violation of federal and state securities laws
and wanted to cure a potential violation through a rescission offer.10
C. The Settlement Agreement
By the end of January 1997, the LP Representatives reached an agreement with
Popco and Pike that would achieve Popco’s goals and allow the Project to move forward.
The terms of the deal were memorialized in an agreement entitled Agreement Regarding
Neogen Project, dated January 21, 1997 (the “Settlement Agreement”).
Answering Popco’s first demand, Pike agreed to resign from all of his roles in the
Project, to sell 75% of his equity interest in the Project, and to give up the voting rights
allied with the 25% equity interest he was allowed to retain. In other words, Pike had to
sell the Majority Shares, and, although he could keep the economic rights to the 25
remaining shares (the “Pike Shares”), he had to give up their attendant voting rights.
10
See App. to Opening Br. at A136, A156–57 (Offering Memorandum at 5, 25–26).
8
The Settlement Agreement provided that, in return for exiting from the Project,
selling the Majority Shares, and giving up voting rights to the Pike Shares, Pike was
contractually entitled to payment of 50% of the distributions on the Majority Shares, up to
a cap of $21.875 million.11 As an advance on the distributions, Pike received an upfront
loan in the amount of $3.5 million (the “Pike Loan”), which Pike would repay from the
first $3.5 million of the distributions.12 Pike also received a consulting agreement that
would pay him $300,000 per year for five years.13
Pike’s side of the exchange presented timing issues for the deal. Pike’s sale of the
Majority Shares was contingent on both the payment of the Pike Loan and the approval of
the Settlement Agreement.14 Once the Pike Loan was funded, Pike would resign all of his
positions at any entity associated with the Project and transfer 49.9% of his shares in Danco
GP.15 Once Popco and the limited partners holding a majority of the interests in Danco LP
approved the Settlement Agreement, Pike would transfer another 25.1% of his shares in
Danco GP.16 But Popco wanted Pike to transfer control of the Project as soon as possible
so that it could cure the potential securities fraud violations and move forward with the
Project. To solve this issue, Pike agreed to transfer voting power over all 100 of his Danco
11
Id. at A021–22 (Settlement Agreement § IV(B)(1)(b)).
12
Id. at A018–21 (Settlement Agreement §§ III(A), IV(B)(1)(a)).
13
Id. at A021–22 (Settlement Agreement § IV(B)(2)(a)).
14
Chancery Opinion, 273 A.3d at 800.
15
App. to Opening Br. at A018–21 (Settlement Agreement §§ IV(A)(1)(a)(i), IV(A)(3)).
16
Id. at A019 (Settlement Agreement § IV(A)(1)(a)(ii)).
9
GP shares as soon as he received the Pike Loan.17 The vehicle for the immediate transfer
of voting power was the Irrevocable Proxy. Through the Irrevocable Proxy, Pike
irrevocably appointed Daniel, Freeman, and Rush (the “Holders”) as his proxies to vote all
100 shares (the “Proxy Shares”).
The Settlement Agreement also addressed Popco’s second demand that the investors
Pike had brought in be offered an opportunity to rescind their interests (the “Recission
Offer”). The Recission Offer would be presented at the same time as an option for the
limited partners of Danco LP to invest additional funds in the Project (the “Offering”).
The terms of the Settlement Agreement created the need for capital to fund the Pike
Loan and the Recission Offer. The Settlement Agreement contemplated that certain
“Participating Investors” would provide the funds.18 It defined Participating Investors as
Old MedApproach, Rush, Freeman, Cusac, and Elkus, plus any other limited partners in
Danco LP who agreed to sign on to the Settlement Agreement on or before January 31,
1997. Each Participating Investor would agree to fund an amount of the Pike Loan and of
the Recission Offer in proportion to their relative interest in Danco LP. In exchange, they
would receive their pro rata interest in the Majority Shares.
Finally, the Settlement Agreement contemplated that in the future, the Participating
Investors could restructure the entities comprising the Project through the creation of a
17
Chancery Opinion, 273 A.3d at 813 (finding that the Settlement Agreement “contemplated a
complex series of transactions that would take time to implement,” and that “[t]he solution was
the Irrevocable Proxy, under which Pike immediately gave up his voting power over the Proxy
Shares”).
18
App. to Opening Br. at A022–23 (Settlement Agreement § IV(D)).
10
“Newco.”19 It provided that the rights covered by the Irrevocable Proxy would inure to the
interests in the Newco, which would be held by the Participating Investors.20 The provision
would allow the Participating Investors to replace the entity structure that Pike had created
to give himself sole control over the Project with a conventional corporate governance
structure once Pike was out of the picture.
D. The Solicitation of the Limited Partners’ Approval of the Settlement Agreement
By its terms, the Settlement Agreement had to be approved by both Popco and a
majority of the interests in Danco LP on or before February 5, 1997, and would only
become effective upon such approval.21 The Settlement Agreement also provided that the
limited partners of Danco LP would have the opportunity to become Participating Investors
if they joined the Settlement Agreement before January 31, 1997. This imposed on the LP
Representatives a tight timeline to solicit the consent of the limited partners of Danco LP
to the Settlement Agreement and to offer them the opportunity to become Participating
Investors.
The LP Representatives circulated a short memorandum, dated January 24, 1997, to
the limited partners of Danco LP that described the Settlement Agreement and the offer to
become Participating Investors (“the Settlement Memorandum”).22 It asked the limited
19
See id. at A019–20, A022–23 (Settlement Agreement §§ IV(A)(2), IV(D)).
20
Id. at A020 (Settlement Agreement § IV(A)(3)).
21
Id. at A018 (Settlement Agreement § III(A)).
22
Id. at A025 (Settlement Memorandum).
11
partners to sign and return a form by January 31, 1997 indicating whether they consented
to the Settlement Agreement and whether they wanted to become Participating Investors.
The Settlement Memorandum briefly described the negotiations between the parties
and the opportunity to become Participating Investors. It also informed the limited partners
of Danco LP of the obligations they would incur under the Settlement Agreement if they
chose to become Participating Investors. In addition to funding the Pike Loan, they would,
on a pro rata basis, “provide to [Danco LP] up to $14 million additional capital
contributions to ‘top up’ the capital of [Danco LP] to the $27.5 million level” originally
contemplated by the Project documents.23 Limited partners who chose to become
Participating Investors would be informed of their proportional amount of the Pike Loan
five days later, on February 5, 1997. They would be informed of their proportional share
of the additional $14 million capital at an unspecified later date.24
E. The Revised Settlement Agreement and the Addendum
Between January 24 and January 31, 1997, the LP Representatives determined that
giving the opportunity to purchase Pike’s equity interests to all limited partners of Danco
LP posed logistical and timing issues. Fearing that an extension of the timeline set by the
Settlement Agreement would delay the deal, the LP Representatives entered into a revised
settlement agreement (the “Revised Settlement”) which provided, among other things, that
only Old MedApproach would purchase the Majority Shares from Pike. None of the other
23
Id. at A026 (Settlement Memorandum).
24
Id. at A028 (Settlement Memorandum).
12
limited partners in Danco LP would become Participating Investors. The only Participating
Investors, and the only counterparties to the Settlement Agreement, would be Old
MedApproach, Freeman, and Rush. They entered into a letter agreement, dated February
4, 1997,25 in which they agreed to an allocation of the funding commitment: Freeman and
Rush each agreed to fund 25%, Old MedApproach agreed to fund the remaining 50%, and
Mr. Hawkins agreed to backstop the liability of Old MedApproach.26
The Revised Settlement posed a problem for the Irrevocable Proxy. The Court of
Chancery found that the purpose of the Irrevocable Proxy was to provide a temporary
governance regime until Pike was expelled from the Project and a more conventional
governance structure would be put in place, wherein shareholders would elect a board of
directors to manage operations.27 Through the Irrevocable Proxy, Pike was appointing
Daniel, Rush, and Freeman as his proxy to vote the Majority Shares in his capacity as
owner of the Majority Shares. But the Revised Settlement contemplated that Pike would
turn over the Majority Shares to Old MedApproach alone, and not the existing limited
partners of Danco LP who had chosen to become Participating Investors.28 Popco wanted
to make sure that Old MedApproach would be bound by the Irrevocable Proxy until the
anticipated reorganization was complete. 29 To address the concern that the Irrevocable
25
Id. at A030 (Financial Commitments in Respect of Neogen Project).
26
Chancery Opinion, 273 A.3d at 802.
27
Id. at 801; see also App. to Opening Br. at A519 (G. Hawkins Trial Testimony at 38).
28
Chancery Opinion, 273 A.3d at 801.
29
Daniel does not directly assert that the Court of Chancery’s finding that the Irrevocable Proxy
structure was not intended to be permanent was clearly erroneous. Id. at 804, 813, 818, 833–34,
835. Instead, he makes a number of assertions that, in our view, either merely state his contrary
13
Proxy would terminate when Old MedApproach bought the shares, Popco’s counsel
prepared an addendum to the Irrevocable Proxy that would explicitly bind Old
MedApproach as the new owner of the Majority Shares (the “Addendum”). 30 The
Addendum is appended to the Irrevocable Proxy and was executed on February 5, 1997,
the same day as the Irrevocable Proxy.31 In it, Old MedApproach agreed to be bound by
the Irrevocable Proxy at any time that it is a beneficial or record holder of any of the Proxy
Shares and agreed not to transfer any such shares of Danco GP to any “MedApproach
Person,” unless such person agrees to be bound by the Irrevocable Proxy. MedApproach
Person is defined as Old MedApproach, “or its affiliates, owners, designees, or nominees
(or their respective successors or assigns).”32
view, or fail to demonstrate any error, let alone clear error, by the trial court. See, e.g., Opening
Br. at 13. These assertions rely in part on extrinsic evidence. However, the trial court found that
the extrinsic evidence cut both ways. We respect the Court of Chancery’s finding that heavy
reliance on extrinsic evidence in this case would be untenable because of the considerable passage
of time. It stated, “[a]lthough [Daniel and Mr. Hawkins] generally seemed credible, their
testimony about negotiations that occurred over two decades ago was not sufficiently reliable to
support factual findings without corroboration.” Chancery Opinion, 273 A.3d at 833 n.45.
Further, we conclude that the Court of Chancery’s factual finding regarding the structure’s
temporary nature is supported by the record and is not clearly erroneous. Daniel’s view is
particularly weakened by the language of the Irrevocable Proxy itself. The Termination Provision
in the proxy explicitly contemplates that it will terminate upon the creation of a Newco. App. to
Opening Br. at A035 (Irrevocable Proxy at 2, ¶ 5).
30
Chancery Opinion, 273 A.3d at 811 (noting that after pivoting to the Revised Settlement, in
which only Old MedApproach acquired the Majority Shares, “PopCo [] insist[ed] on a mechanism
to bind Old MedApproach to the Irrevocable Proxy”).
31
App. to Opening Br. at A034 (Irrevocable Proxy at 1).
32
Id. at A039 (Irrevocable Proxy at 5).
14
As requested by the LP Representatives,33 a majority of the interests in Danco LP
approved the Revised Settlement. Mr. Hawkins transferred the amount of the Pike Loan
to Pike and on February 11, 1997, Pike acknowledged receipt, resigned from his leadership
positions, and transferred the Majority Shares to Old MedApproach. The next day, the
parties to the litigation initiated by Popco approximately three months earlier, filed a
stipulation of dismissal, dismissing the action with prejudice.34
F. The Recission Offer and the Offering
After approximately a year-long delay largely due to the loss of Danco Labs’
primary manufacturing contract, Danco LP launched the Recission Offer and the Offering
by circulating a confidential offering memorandum to its limited partners on August 5,
1998 (the “Offering Memorandum”).35 The Offering Memorandum both informed limited
partners of Danco LP about the Rescission Offer and sought to sell up to $27.5 million
aggregate amount of limited partnership interests in Danco LP in the Offering. Of the
$27.5 million, $13.35 million would be used to fund the Recission Offer to the extent
limited partners chose to rescind, and at least the remaining $14.15 million would serve as
additional funding for the Project.36 The Offering Memorandum described the history of
33
On January 31, 1997, the LP Representatives circulated a revised memorandum to the limited
partners of Danco LP reflecting the changes and requesting their consent to (i) enter into the
Revised Settlement, (ii) transfer interests in, and change control of, Danco GP, and (iii) transfer
voting control of Danco GP to Daniel, Freeman, and Rush. Id. at A207 (Offering Memorandum
at 76). The revised memorandum does not appear in the record, but it is described in the Offering
Memorandum.
34
Id. at A208 (Offering Memorandum at 77).
35
Id. at A128, A190 (Offering Memorandum at 1, 59).
36
Id. at A137 (Offering Memorandum at 6).
15
the Project, Pike’s legal trouble, the Revised Settlement, and various Project risk factors,
including risks relating to the control of Danco LP.37 It disclosed that limited partners of
Danco LP lacked control over the entity and the Project because they did not have voting
rights.38 Instead, Danco LP was managed and controlled exclusively by its general partner.
As for Danco GP, the Offering Memorandum explained that it was “controlled by the [ ]
Holders.”39 It also stated that:
Pursuant to an Irrevocable Proxy and Power of Attorney, dated February 5,
1997, [Old MedApproach], Mr. Pike and his wife granted to Messrs. Daniel
and Freeman and Dr. Rush . . . proxies to vote their respective interests in
[Danco GP]. Accordingly, [Danco GP] is in effect managed by or under the
direction of the [ ] Holders.40
Apart from disclosing the existence of the Irrevocable Proxy and the identities of the
Holders, the Offering Memorandum was silent as to its terms. Importantly, it did not
explicitly address whether the Irrevocable Proxy would bind any subsequent owner of the
Majority Shares.41
37
See e.g., id. at A135–36, A141–55, A205–09 (Offering Memorandum at 4–5, 74–78, 10–24).
38
Id. at A149 (Offering Memorandum at 18) (“Therefore, except for certain extraordinary matters
(such as admitting new or additional general partners, changing the nature of [Danco LP’s]
business, acting in contravention of the Partnership Agreement, obtaining financing from affiliates
of [Danco LP], or amending the Partnership Agreement), the Limited Partners have no voice in
the day-to-day management of [Danco LP] or its business or affairs and have no voting rights.”).
39
Id.
40
Id. at A180 (Offering Memorandum at 49).
41
Chancery Opinion, 273 A.3d at 811 (“[Daniel’s] arguments tacitly concede that there is no
provision in the Irrevocable Proxy which expressly states that it runs with the Majority Shares.”).
16
The Rescission Offer closed in 1999. It raised $23,901,966, falling short of its $27.5
million goal.42 At trial, Mr. Hawkins estimated that he ultimately contributed $5–6 million
to the Rescission Offer.
G. Freeman Resigns
After the Rescission Offer closed, Freemen sent a letter to Daniel and Rush dated
May 17, 1999 (“Freeman Resignation Letter”).43 It informed them that he would no longer
be serving as a Holder under the Irrevocable Proxy or a director of Danco GP. He explained
that he was resigning in part because, “upon the completion or termination of the current
financing, restructuring, [and] rescission efforts, the role of [ ] Holder is no longer
necessary.”44 The Court of Chancery found that this “assertion evinces the pre-litigation
understanding of a party closely involved in the settlement, and it indicates that the
Irrevocable Proxy was not intended as a permanent control arrangement.”45 Freeman died
in 2001, and since no one ever replaced Freeman as a Holder, Daniel and Rush are the only
two remaining Holders. Rush is not a party to this litigation.
H. The Restructuring of Old MedApproach
After the Rescission Offer closed in 1999, Daniel caused Old MedApproach to
undergo a significant restructuring. Old MedApproach dissolved and, upon its winding up,
distributed its holdings across three newly formed Delaware limited partnerships: the
42
App. to Opening Br. at A572 (A. Van Vranken Trial Testimony at 250).
43
App. to Answering Br. at B362–63 (Freeman Resignation Letter).
44
Id. at B362.
45
Chancery Opinion, 273 A.3d at 804.
17
Partnership, DIG Special Assets, LP, and DIG Equity, LP. Daniel kept himself at the top
of the new tri-entity structure. He is the 100% owner of his co-defendant, Holdings, the
successor entity to Bio-Pharm Investments, Inc., and the general partner of the three
MedApproach entities.
As part of the restructuring, Old MedApproach distributed the Majority Shares to
the Partnership, which is 88% owned by Mrs. Hawkins. Because of the Majority Shares,
the Partnership owns 75% of Danco GP, with Pike still holding on to the remaining 25%.
Consistent with its obligations under the Addendum as a MedApproach Person, the
Partnership executed an Agreement To Be Bound by Irrevocable Proxy when it became
the owner of the Majority Shares on January 1, 1999.46
Mrs. Hawkins owns additional limited partnership interests in Danco LP through
DIG Special Assets, LP and DIG Equity LP, but the two entities are otherwise not relevant
to the question before the Court.
The parties agreed that the following chart accurately represents the current
organizational structure of the relevant entities. Med Approach Holdings is Holdings;
MedApproach LP is the Partnership; N.D. Management is Danco GP; and Danco Investors
Group, L.P. is Danco LP.
46
App. to Opening Br. at A370 (Agreement To Be Bound By Irrevocable Proxy And Power Of
Attorney).
18
The economics of the Project flow from Danco Labs all the way up to Holdings.
Danco Labs distributes all of its profits to its owner, Danco LP, which then distributes 20%
of the profits to its general partner, Danco GP. Danco GP uses its 20% to pay dividends to
its stockholders: The Partnership (in which Mrs. Hawkins has an 88% interest) receives
75% of any dividend and Pike receives the remaining 25%. Danco LP distributes the
remaining 80% of its share of Danco Lab’s profits to its limited partners. Through its
19
ownership of the Majority Shares and the limited partner interest in Danco LP, the
Partnership receives approximately 17.71%47 of the profits generated by Danco Labs.48
Holdings receives its piece of the pie as the general partner of the MedApproach
entities. The Partnership pays Holdings a 1% management fee. Holdings also receives
distributions on a 10% carried interest. As sole owner, Daniel receives the earnings of
Holdings, net of expenses.49
I. The End of the Pike Dispute and the Beginning of the Daniel/Hawkins Dispute
By the end of the millennium, the Project had completed the Rescission Offer, raised
additional funds through the Offering, and undergone a restructuring. In September 2000,
the United States Food and Drug Administration approved mifepristone for sale in the
United States. Finally, by 2001, the remnants of the Pike debacle were cleared up:
Disputes with Pike were resolved and the financial obligations to him under the Settlement
Agreement had been satisfied.
47
See Chancery Opinion, 273 A.3d at 805 n.17. As the owner of the Majority Shares, the
Partnership receives 75% of 20% of Danco Labs’ profits. 75% multiplied by 20% equals 15%.
The Partnership receives 2.71% of the profits of Danco Labs through the Partnership’s ownership
of a limited partnership interest in Danco LP. 15% plus 2.71% equals 17.71%.
48
Id. at 805.
49
Daniel also receives considerable compensation for being a Holder. In a 1998 letter agreement,
Old MedApproach acknowledged that Daniel would receive $300,000 per year from Danco LP
and that Danco LP could reimburse Daniel for certain out-of-pocket expenses and additional
special services he may provide. Ultimately, Daniel has earned approximately $10.3 million in
proxy fees from Danco LP since 1996. He also receives $3,000 for each day spent on litigation
involving the Project under an indemnification agreement with the Partnership, Danco GP, and
Danco LP. Finally, Daniel earns income through an entity that leases office space to Danco GP
and Danco LP.
20
With the threat of Pike asserting control over the Project ameliorated, Mr. Hawkins
sought to terminate the Irrevocable Proxy. Daniel informed Mr. Hawkins that the
Irrevocable Proxy was irrevocable and could not be relinquished. As a result, the parties
have filed a series of lawsuits against one another. 50 This litigation is the latest.
J. The Parties’ Negotiations Over the Majority Shares
The Partnership is governed by an Agreement of Limited Partnership dated as of
January 1, 1999 (the “Partnership Agreement”). The Partnership Agreement provided that
the Partnership shall terminate upon the expiration of its term, on December 31, 2020.
As the expiration date approached, Daniel sought the approval of the limited
partners of the Partnership to extend the term of the Partnership until 2045 to align with
the term of Danco LP. The limited partners agreed, except for Mrs. Hawkins. Mrs.
Hawkins agreed only to extend the term until February 28, 2021. Because Mrs. Hawkins
owns 88% of the limited partnership interests in the Partnership, the Partnership dissolved
on that date.
The terms of the Partnership Agreement provide that after the Partnership dissolves,
the only business to be conducted is completion of any pending transactions and the
winding up of the affairs of the Partnership, including the distribution of its assets. The
50
Daniel’s entity, Holdings, initiated a suit in 2011 against Mr. and Mrs. Hawkins regarding
management fees due to the entity. See MedApproach Hldgs., Inc. v. Hawkins, 2012 WL 6569268,
at *1 (M.D. Tenn. Dec. 17, 2012). The parties have settled the matter. See MedApproach Hldgs.,
Inc. v. Hawkins, Civ. No. 3:11-cv-01199, ECF No. 125 (M.D. Tenn. Oct. 11, 2016). In 2021, the
United States District Court for the Southern District of New York dismissed a 2013 action
initiated by Mrs. Hawkins to invalidate the Irrevocable Proxy and resolve unrelated claims relating
to the management of the MedApproach partnerships. See generally Hawkins v. Daniel (Dismissal
Decision), 2021 WL 3732539, at *7–8 (Del. Ch. Aug. 24, 2021).
21
Partnership Agreement empowers its general partner, Holdings, to wind up the
Partnership’s affairs. In doing so, Holdings is required to convert to cash the Partnership’s
noncash assets and determine the capital accounts of its limited partners.
On March 22, 2021, Mr. Hawkins sent a letter to Daniel, as owner of Holdings,
conveying his interest in purchasing the Majority Shares in the winding up process. In his
letter, Mr. Hawkins proposed a price in the range of $12 to $15 million, under the
“threshold” condition that the Majority Shares be sold “free and clear from, and not subject
to,” the Irrevocable Proxy.51
On March 25, 2021, Daniel responded that any offer would have to “take into
account the terms of the [Irrevocable] Proxy.”52 The next day, Daniel solicited offers from
the other limited partners in Danco LP for the Majority Shares. Only Rush responded with
an offer, proposing $5 million for 80% of the Partnership’s total assets based on the
assumption that the Irrevocable Proxy would remain in place. The offer valued the
Partnership at $6.125 million, approximately 50% lower than the bottom of the range
proposed by Mr. Hawkins.
The discussions between Mr. Hawkins and Daniel regarding the Majority Shares
went nowhere. Neither of them was willing to budge on the issue of the Irrevocable Proxy.
App. to Opening Br. at A455 (“Potential Offer to Purchase N.D. Management, Inc. Stock” dated
51
March 22, 2021).
52
Id. at A457 (“MedApproach Bid” dated March 25, 2021).
22
K. The Litigation
On May 24, 2021, Mrs. Hawkins filed suit in the Court of Chancery asserting two
counts against Daniel and Holdings. In Count I, Mrs. Hawkins sought a declaratory
judgment that the defendants “are required to market and sell the Partnership’s 75% stake
in [Danco GP] free and clear from, and not subject to, the continued application of the
[Irrevocable] Proxy.”53 In Count II, she sought an injunction prohibiting the defendants
“from marketing and/or selling the [Majority Shares] subject to the continued application
of the [Irrevocable] Proxy.”54 She also sought expedited proceedings, and the trial court
granted expedition.
After dismissing a motion to dismiss filed by Daniel, the trial court held a one-day
trial on September 23, 2021. At trial, Daniel agreed to postpone sale of the Majority Shares
pending the outcome of this litigation. Post-trial briefing and argument moved forward on
a non-expedited schedule, and the Court of Chancery issued its memorandum opinion on
April 4, 2022. It entered judgment in favor of Mrs. Hawkins on May 9, 2022.
In its memorandum opinion, the Court of Chancery summarized its conclusion as
follows:
The Irrevocable Proxy does not plainly provide that it binds a subsequent
owner of the Majority Shares. There is language which might be construed
in that fashion if read broadly and in Daniel’s favor, but that is not sufficient.
The Addendum demonstrates that the parties themselves did not believe that
the Irrevocable Proxy would bind a subsequent purchaser of the Majority
Shares. The Addendum contains the Transfer Restriction [defined below],
53
Id. at A480–81.
54
Id. at A481.
23
but that provision does not encompass a third party [owner] of the Majority
Shares.
As a result, “the language of the Proxy itself does not plainly indicate that
the Proxy [is] to run with the [s]hares if they are sold.” Accordingly, the
Irrevocable Proxy does not run with the Majority Shares.55
In short, the court held that “the plain language of the Irrevocable Proxy does not establish
a grant of agency authority that runs with the Majority Shares.”56 Daniel filed notice of
appeal on May 31, 2022. Oral argument was held on November 2, 2022.
II. SCOPE AND STANDARD OF REVIEW
Daniel claims that the Court of Chancery erred as a matter of law in interpreting the
language of the Irrevocable Proxy. Because irrevocable proxies are contracts, this is a
question of contract interpretation. Contract interpretation is a question of law subject to
de novo review by this Court.57 “Unless there is ambiguity, Delaware courts interpret
contract terms according to their plain, ordinary meaning.”58 To the extent Daniel
challenges the factual findings of the trial court, we will not disturb those findings “unless
they are clearly erroneous and not supported by the record.”59 “Where there are two
55
Chancery Opinion, 273 A.3d at 832–33 (quoting TR Invs., LLC v. Genger, 2010 WL 2901704(Genger Trial), at *20 (Del. Ch. July 23, 2010), aff’d, 26 A.3d 180 (Del. 2011)).
56
Id. at 812.
57
See, e.g., Genger v. TR Invs., LLC, 26 A.3d 180, 190 (Genger) (Del. 2011) (interpreting proxy);
Stream TV Networks, Inc. v. Seecubic, Inc. (Stream TV), 279 A.3d 323, 336 (Del. 2022)
(interpreting corporate charter).
58
Stream TV, 279 A.3d at 336 (quoting Alta Berkeley VI C.V. v. Omneon Inc., 41 A.3d 381, 385
(Del. 2012)).
59
Genger, 26 A.3d at 190 (citing Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1158 (Del.
2010)).
24
permissible views of the evidence, the factfinder’s choice between them cannot be clearly
erroneous.”60
III. ANALYSIS
This Court must determine whether the Court of Chancery erred in finding that the
Irrevocable Proxy does not run with the Majority Shares. Delaware public policy and law
require that the terms of an irrevocable proxy be clear and unambiguous.61 Therefore, a
Delaware court will not look to extrinsic evidence in interpreting an irrevocable proxy but
will rely on the four corners of the proxy instrument itself. Where the irrevocable proxy is
ambiguous, the ambiguity will be construed against the rights of the proxy holder.62
As explained more fully below, we agree with the Court of Chancery, at least to the
extent that the Irrevocable Proxy is ambiguous as to whether it binds subsequent third-
party owners of the Majority Shares. As a result, it should be construed against the rights
of the Holder, Daniel. That means the Irrevocable Proxy does not run with the Majority
Shares in a sale to an unaffiliated third party.
60
Bank of New York Mellon Trust Co., N.A. v. Liberty Media Corp., 29 A.3d 225, 236 (Del. 2011).
61
Genger Trial, 2010 WL 2901704 at *20 (finding that a proxy did not run with the shares because
“the language of the Proxy itself does not plainly indicate that the Proxy was to run with the Shares
if they are sold” and that “[e]ven if the language of the Proxy was ambiguous–which it is not–
public policy concerns require that the Proxy be strictly construed”).
62
Id. See also Eliason v. Englehart, 733 A.2d 944, 947 (Del. 1999) (finding a proxy to be
revocable where the words expressly stating that it was an “Irrevocable Proxy” were only found
in the instrument’s signature acknowledgement, not in the language of the proxy itself).
25
A. Irrevocable Proxies Are Strictly Construed
In the opinion below, the Court of Chancery recognized that “under the Delaware
model, stockholders are presumed to vote in their economic interest.”63 When stockholders
vote in their economic interests, the collective vote of the stockholders “serve[s] the
‘community of interest’ among all shareholders” and furthers the corporate goal of wealth
maximization.64 This presumption underlies our Delaware courts’ preference to defer to
the vote of disinterested stockholders. “[T]he long-standing policy of our law has been to
avoid the uncertainties and costs of judicial second-guessing when the disinterested
stockholders have had the free and informed chance to decide on the economic merits of a
transaction for themselves.”65
63
Chancery Opinion, 273 A.3d at 808. See, e.g., Crown EMAK Partners LLC v. Kurz, 992 A.2d
377, 389 (Del. 2010) (affirming the Court of Chancery’s conclusion that no improper vote buying
occurred since the economic and voting interests remained aligned when both sets of interests were
transferred by the purchase agreement); Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1380–81
(Del. 1995) (noting that “stockholders are presumed to act in their own best economic interests
when they vote in a proxy contest”).
64
Crown EMAK Partners LLC, 992 A.2d at 388 (citing In re IXC Commc’ns, Inc. S’holders Litig.,
1999 WL 1009174, at *8 (Del. Ch. Oct. 27, 1999)); see also Corwin v. KKR Fin. Hldgs. LLC, 125
A.3d 304, 314 (Del. 2015) (“In circumstances, therefore, where the stockholders have had the
voluntary choice to accept or reject a transaction, the business judgment rule standard of review is
the presumptively correct one and best facilitates wealth creation through the corporate form.”);
Haft v. Haft, 671 A.2d 413, 421 (Del. Ch. 1995) (“A powerful argument can be advanced that
generally the congruence of the right to vote and the residual rights of ownership will tend towards
efficient wealth production.”).
65
Corwin, 125 A.3d at 312–13; see also In re Lear Corp. S’holder Litig., 926 A.2d 94, 114–15
(Del. Ch. 2007) (“Delaware corporation law gives great weight to informed decisions made by an
uncoerced electorate. When disinterested stockholders make a mature decision about their
economic self-interest, judicial second-guessing is almost completely circumscribed by the
doctrine of ratification.”) (internal footnotes omitted)). This Court in Corwin explained the
underlying rationale of our policy not to second-guess the informed choice of disinterested
stockholders:
26
The legitimizing influence of a stockholder vote is premised upon the alignment of
the economic and voting interests of stockholders. However, innovations in technology
and finance have made it easier to separate the voting interests from the financial interests
of shares.66 Early Delaware courts were suspicious of such arrangements.67 In Schreiber
v. Carney,68 for example, our Court of Chancery examined the state of the law as it related
When the real parties in interest—the disinterested equity owners—can easily
protect themselves at the ballot box by simply voting no, the utility of a litigation-
intrusive standard of review promises more costs to stockholders in the form of
litigation rents and inhibitions on risk-taking than it promises in terms of benefits
to them. The reason for that is tied to the core rationale of the business judgment
rule, which is that judges are poorly positioned to evaluate the wisdom of business
decisions and there is little utility to having them second-guess the determination
of impartial decision-makers with more information (in the case of directors) or an
actual economic stake in the outcome (in the case of informed, disinterested
stockholders).”
Corwin, 125 A.3d at 313–14 (emphasis added) (internal footnote omitted).
66
Crown EMAK Partners LLC, 992 A.2d at 387–88 (citing Robert B. Thompson & Paul H.
Edelman, Corporate Voting, 62 Vand. L. Rev. 129, 153 (2009)). Innovations have also led to the
rise in dual-, multi-, and zero-class voting structures, as opposed to the “one share-one vote”
default rule memorialized in our 8 Del. C. § 212(a). See David T. White, Delaware’s Role in
Handling the Rise of Dual-, Multi-, and Zero-Class Voting Structures, 45 Del. J. Corp. L. 141(2020); Thompson & Edelman, supra, at 158–60.
67
See e.g., Oceanic Exploration Co. v. Grynberg, 428 A.2d 1, 7 (Del. 1981) (observing that
“[v]oting trusts were viewed with ‘disfavor’ or ‘looked upon . . . with indulgence’ by the courts”
and “other contractual arrangements interfering with stock ownership, such as irrevocable proxies,
were viewed with suspicion’”) (citing Perry v. Missouri-Kansas Pipe Line Co., 191 A. 823, 827
(Del. Ch. 1937))); Haft, 671 A.2d at 421 (“[I]t is appropriate to acknowledge that the corporate
law has tended to distrust and discourage the separation of the shareholder claim as equity investor
(i.e., the right to enjoy distributions on stock if, as, and when declared) from the right to vote stock.
For example there was for many years a rather clear rule against the sale of a corporate vote
unattached to the sale of the underlying stock.”) (internal footnote omitted) (evaluating whether a
proxy was irrevocable); Commonwealth Assocs. v. Providence Health Care, Inc, 641 A.2d 155,
157 (Del. Ch. 1993) (“The law has long discouraged the sale of votes unconnected to the sale of
stock.”); Macht v. Merchants Mortgage & Credit Co., 194 A. 19, 22 (Del. Ch. 1937) (“To allow
voting rights that are bought to be exercised is against public policy, and would be in fraud of the
other stockholders.”).
68
447 A.2d 17 (Del. Ch. 1982).
27
to vote-buying.69 It clarified that “an agreement involving the transfer of stock voting
rights without the transfer of ownership is not necessarily illegal and each arrangement
must be examined in light of its object or purpose.”70
Nearly three decades later, this Court, in Crown EMAK Partners LLC, again
examined a challenged vote-buying arrangement. We recognized that the separation of
voting power and economic interest should be subject to greater scrutiny because it
“compromises the ability of voting to perform its assigned role.”71 We affirmed the Court
of Chancery’s conclusion that no improper vote buying had occurred in that case “because
the economic interests and the voting interests of the shares remained aligned.”72 We
explained:
For many years, Delaware decisions have expressed consistent concerns
about transactions that create a misalignment between the voting interest and
the economic interest of shares. As then Vice–Chancellor (now Chief Justice)
69
The Schreiber court defined vote-buying as “a voting agreement supported by consideration
personal to the stockholder, whereby the stockholder divorces his discretionary voting power and
votes as directed by the offeror.” Id. at 23.
70
Id. at 25.
71
Crown EMAK Partners LLC, 992 A.2d at 388 (citing Thompson & Edelman, supra note 66, at
153). The Crown EMAK Court further quoted Thompson and Edelman: “They concluded that ‘[a]
decisionmaking system that relies on votes to determine the decision of the group necessarily
requires that the voters’ interest be aligned with the collective interest. [Therefore, i]t remains
important to require an alignment between share voting and the financial interest of the shares.”
Id. (alteration in original); see also Commonwealth Assocs., 641 A.2d at 157 (noting law’s historic
concern about “the sale of votes unconnected to the sale of stock” in part because “such sales
misalign the interests of voters and the interests of the residual corporate risk bearers”).
Accordingly, Delaware law requires that an irrevocable proxy be “coupled with an interest”
whether “in the stock itself” or “in the corporation generally.” 8 Del. C. § 212(e) (“A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an interest in the stock
itself or an interest in the corporation generally.”).
72
Crown EMAK Partners LLC, 992 A.2d at 390.
28
Steele explained, “[g]enerally speaking, courts closely scrutinize vote-
buying because a shareholder who divorces property interest from voting
interest [ ] fails to serve the ‘community of interest’ among all shareholders,
since the ‘bought’ shareholder votes may not reflect rational, economic self-
interest arguably common to all shareholders.” Again, in this case, the Court
of Chancery recognized that “[w]hat legitimizes the stockholder vote as a
decision-making mechanism is the premise that stockholders with economic
ownership are expressing their collective view as to whether a particular
course of action serves the corporate goal of stockholder wealth
maximization.”73
A proxy instrument is evidence of an agency relationship wherein the beneficial
owner-principal appoints a proxy holder-agent as attorney-in-fact with respect to the voting
rights of the shares.74 Thus, by its very nature, a proxy, which temporarily splits the power
to vote from the residual ownership claim of the stockholder, has the potential to create
misalignment between the voting interest and the economic interest of shares. As the Court
of Chancery noted, the risks of significant divergence of interests between the proxy holder
and the holder of the residual interests are enhanced where the proxy is irrevocable. That
is because an irrevocable proxy, unlike a revocable proxy which is typically of relatively
short duration and is revocable by the grantor, frees the holder from “the unilateral control
of the grantor.”75 Here, not only is the proxy arrangement irrevocable, but Daniel asks this
73
Crown EMAK Partners LLC, 992 A.2d. at 388 (first quoting In re IXC Commc’s, Inc. S’holders
Litig., 1999 WL 1009174, at *8; then quoting Kurz v. Holbrook, 989 A.2d 140, 178 (Del. Ch.
2010)).
74
See Eliason, 733 A.2d at 946 (“A proxy is evidence of an agent’s authority to vote shares owned
by another.”) (citing Duffy v. Loft, Inc., 151 A. 223, 227 (Del. Ch.), aff’d, 152 A. 849 (Del.
1930))); Moran v. Household Int’l, Inc., 500 A.2d 1346, 1355 (Del. 1985) (“[I]t has long been
recognized that the relationship between grantor and recipient of a proxy is one of agency, and the
agency is revocable by the grantor at any time.”).
75
Haft, 671 A.2d at 421.
29
Court to find that it runs with the Majority Shares, binding a future owner to an agent that
may or may not be economically aligned.
As our approach to vote-buying arrangements and voting trusts has liberalized with
innovations in technology and finance, so, too, has our approach to proxy arrangements. 76
Still, because of the concerns arising from a decoupling of the voting and economic interest
in shares, “[h]istorically, proxies have been interpreted narrowly and when there is an
ambiguity, read as not restricting the right to vote the shares.”77 When interpreting an
irrevocable proxy, Delaware courts do not turn to extrinsic evidence to resolve an
ambiguity. Rather, they construe the irrevocable proxy in favor of the rights of the
76
See Oceanic Exploration Co. v. Grynberg, 428 A.2d 1, 7 (Del. 1981). In finding that the trial
court erred in holding that a contract among stockholders was a “voting trust” within the meaning
of 8 Del. C. § 218(a) and (b), we observed:
[I]t is important to recognize there has been a significant change from the days of
our original 1925 statute. Voting trusts were viewed with “disfavor” or “looked
upon . . . with indulgence” by the courts. Other contractual arrangements
interfering with stock ownership, such as irrevocable proxies, were viewed with
suspicion. The desire for flexibility in modern society has altered such restrictive
thinking. The trend of liberalization was markedly apparent in the 1967 changes to
our own [8 Del. C. § 218]. Voting or other agreements and irrevocable proxies were
given favorable treatment and restrictive judicial interpretations as to the absolute
voiding of voting trusts for terms beyond the statutory limit were changed by
statute.
Id. (alteration in original) (citing E. FOLK, The Delaware General Corporation Law § 218 at 240–
42 (1972)).
Further, in 1967, the General Assembly amended 8 Del. C. § 212(c) (now § 212(e)) to clarify that
a proxy may be made irrevocable “regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally.” 8 Del. C. § 212(e). The
language added in 1967 (“an interest in the corporation generally”) was intended to address a
suggestion in In re Chilson, 168 A. 82 (Del. Ch. 1933) that in order to support irrevocability, the
holder had to have an interest in the stock itself.
77
Genger Trial, 2010 WL 2901704, at *20.
30
beneficial owner of the shares.78 Here, the Irrevocable Proxy does not run with the
Majority Shares unless its plain language clearly and unambiguously provides that it
does.79 The Court of Chancery read the Irrevocable Proxy as a whole, painstakingly
examining the preamble, recitals, each operative provision, and the Addendum, and
concluded that it does not. For the reasons discussed below, we agree.
B. The Plain Language of the Irrevocable Proxy
On appeal, Daniel contends that the plain language of the Irrevocable Proxy
provides that it runs with the Majority Shares and that the Court of Chancery erred in three
ways in concluding otherwise. Daniel’s first two arguments concern the provision
regarding non-termination of the Irrevocable Proxy (the “Non-Termination Provision”).
His final argument concerns the provision governing assignment of rights under the
Irrevocable Proxy (the “Assignment Provision”). Daniel does not challenge other of the
Court of Chancery’s findings supporting its opinion.80
78
See id. (finding that because “language of the Proxy itself does not plainly indicate that the Proxy
was to run with the Shares if they are sold,” they did not and that “[e]ven if the language of the
Proxy was ambiguous . . . public policy concerns require that the Proxy be strictly construed”).
79
See generally Urdan v. WR Cap. Partners, LLC, 2019 WL 3891720, at *11 (Del. Ch. Aug. 19,
2019) (“If a seller wishes to retain a subset of the rights associated with the transferred shares, such
as the right to assert a direct claim, then the parties to the transaction must provide specifically for
that outcome.”), aff’d, 244 A.3d 668 (Del. 2020); In re Activision Blizzard, Inc. S’holder Litig.,
124 A.3d 1025, 1050 (Del. Ch. 2015) (“When a share of stock is sold, the property rights associated
with the shares, including any claim for breach of those rights and the ability to benefit from any
recovery or other remedy, travel with the shares.”).
80
The Irrevocable Proxy provides that its terms shall be governed by the law of the State of
California “[e]xcept to the extent required by the corporate or other provisions of the laws of the
Cayman Islands.” App. to Opening Br. at A035 (Irrevocable Proxy at 2, ¶ 3). Despite the
Irrevocable Proxy’s choice of law provision, the parties have relied almost entirely on Delaware
law in litigating this case. We, like the Court of Chancery, follow the parties’ lead and interpret
the Irrevocable Proxy according to Delaware law. Chancery Opinion, 273 A.3d at 810 n.21.
31
We first address several findings of the Court of Chancery which Daniel does not
challenge on appeal, but which support our conclusion that the Irrevocable Proxy does not
run with the Majority Shares. We then address each of Daniel’s arguments in turn.
1. The Court of Chancery’s Unchallenged Findings
The Court of Chancery began its analysis of the Irrevocable Proxy with an overview
of its plain language. It found that (1) the definitions of “Stockholder” and “Shares” in the
preamble, (2) the plain language of the Appointment Provision (defined below), and (3)
the presence of the Addendum, all weighed in favor of Appellee’s reading of the
Irrevocable Proxy.81 Daniel does not challenge these findings on appeal. The force of
these unchallenged findings undermines Daniel’s arguments that the Court of Chancery
erred in finding that the Irrevocable Proxy runs with the Majority Shares.
a. The Definitions of “Stockholder” and “Shares” Limit the Irrevocable Proxy to
Only Those Shares Owned By Pike, Then By Old MedApproach, and Now By the
Partnership
The Irrevocable Proxy is the instrument by which the owner of the Majority Shares
granted the Holders the authority to exercise the Majority Shares’ attendant voting rights.
The preamble of the Irrevocable Proxy defines the “Stockholder” as “Joseph D. Pike.”82 It
does not include language that would include subsequent holders of the Majority Shares.
The Addendum provides that, at any time that Old MedApproach or a MedApproach
81
The trial court’s opinion discusses additional recitals which it analyzed in the context of Daniel’s
suggestion that the Irrevocable Proxy was intended to be a permanent corporate governance
arrangement. See supra note 29.
82
App. to Opening Br. at A034 (Irrevocable Proxy at 1).
32
Person holds the Proxy Shares, all references to “Stockholder” in the Irrevocable Proxy
shall refer to the MedApproach stockholder.83 Therefore, every reference to “Stockholder”
in the Irrevocable Proxy is only to Pike initially, then Old MedApproach, and now, to the
Partnership.84
The first recital in the Irrevocable Proxy defines the “Shares” as “an aggregate of
100 shares [ ] of the Common Stock, $1.00 par value, of [Danco GP]” of which “the
Stockholder is the sole beneficial owner.”85 In other words, they are the “Shares” that were
owned by Pike at the time he executed the Irrevocable Proxy. 86 Now they are the “Shares”
owned by the Partnership.
The narrow definitions of “Stockholder” and “Shares,” carried through the
Addendum and the Agreement To Be Bound, do not evince an intent by the parties for the
Irrevocable Proxy to run with the Majority Shares. Instead, the two definitions cabin the
applicability of the Irrevocable Proxy to those shares owned by Old MedApproach or any
other MedApproach Person who has agreed to be bound by the Irrevocable Proxy and has
become a “Stockholder.” In short, as the Court of Chancery found, “there is nothing in the
83
Id. at A039 (Irrevocable Proxy at 5).
84
See id. at A370 (Agreement To Be Bound By Irrevocable Proxy And Power Of Attorney) (“[The
Partnership] hereby joins, becomes a party to, and agrees to be bound as a ‘Stockholder’ by the
provisions, terms and conditions of, and shall be entitled to all rights, benefits and remedies as a
‘Stockholder’ under [the Irrevocable Proxy] . . . .”).
85
Id. at A034 (Irrevocable Proxy at 1).
86
Chancery Opinion, 273 A.3d at 813.
33
preamble or recitals standing alone that would suggest the Irrevocable Proxy runs with the
Majority Shares.”87
b. The Appointment Provision Indicates the Holders Are Only Appointed as to the
Shares Pike Owned During the Term of the Irrevocable Proxy
The first operative provision of the Irrevocable Proxy is the provision that grants
Daniel, Freeman, and Rush the power to exercise the Proxy Shares’ voting rights (the
“Appointment Provision”).88 The Appointment Provision states in relevant part:
The Stockholder hereby constitutes and appoints each Holder, during the
term of this Irrevocable Proxy, as the Stockholder’s true and lawful proxy
and attorney-in-fact, with full power of substitution, to vote all of the Shares
plus any additional Shares which Stockholder may own or hold as of the date
of any such vote (and any all [sic] securities issued or issuable in respect
thereof) which Stockholder is entitled to vote (collectively, the “Proxy
Shares”), for and in the name, place and stead of the Stockholder, at any
annual, special or other meeting of the stockholders of the Company, and at
any adjournment or postponement thereof, or pursuant to any consent in lieu
of a meeting or otherwise.89
This Court examined a similar appointment provision in Genger,90 where it upheld
the Court of Chancery’s finding that the proxy there did not run with the associated shares.
The appointment provision of the proxy in Genger provided that:
The [Sagi Trust] . . . does hereby constitute and appoint Arie Genger . . . to
vote as its proxy, all shares of common stock of [Trans–Resources] which
87
Id. at 814.
88
The Appointment Provision creates the agency relationship under Delaware law. It both
appoints someone — the Holders — to vote the shares, see Loboto v. Health Concepts IV, Inc.,
606 A.2d 1343, 1347 (Del. Ch. 1991), and “identif[ies] the shares to be voted by the agent,”
Eliason, 733 A.2d at 946.
89
App. to Opening Br. at A034 (Irrevocable Proxy at 1, ¶ 1).
90
26 A.3d 180.
34
are now or hereafter owned by the Trust, at any and all meetings of the
stockholders of Trans–Resources . . . .91
This Court looked at the proxy’s plain language and agreed that the proxy “would
attach only to those [Trans–Resources] shares that were ‘now or hereafter owned by the
Trust.’”92 Because there was no provision explicitly providing that shares owned by a
subsequent owner would be covered by the proxy and the proxy plainly only applied to
those shares “owned by the Trust,” the proxy did not run with the shares at issue.93
Here, the Appointment Provision states that Pike, as the Stockholder, appointed the
Holders to be his proxy and attorney-in-fact “to vote all of the Shares plus any additional
Shares which Stockholder may own or hold as of the date of any such vote (and any all [sic]
securities issued or issuable in respect thereof) which Stockholder is entitled to vote.” The
Appointment Provision here goes one step further than that in Genger, clarifying that the
Holders may vote the shares “for and in the name, place and stead of the Stockholder.” As
in Genger, by its plain language, the appointment is only with respect to shares of Danco
GP owned by “the Stockholder” at the time of a vote and the authority only extends as far
as that of the Stockholder. As discussed above, because “Stockholder” is defined only as
Pike, and later Old MedApproach and the Partnership, the provision indicates that the
Irrevocable Proxy does not run with the Majority Shares.
91
Id. at 198 (alteration in original) (emphasis in original).
92
Id.93
Id. (“The Proxy contains no provision that would bind any subsequent owner of those shares.
Once sold or transferred to a subsequent owner, those shares were no longer ‘owned by the [Sagi]
Trust’ and therefore, were no longer subject to the Proxy.”) (emphasis in original).
35
c. The Addendum Demonstrates That the Drafters Did Not Intend Subsequent Buyers
to Be Bound by The Irrevocable Proxy Absent Their Agreement to Be Bound
As discussed above, the initial Settlement Agreement contemplated that certain
Participating Investors, defined as Old MedApproach, Freeman, Rush, and importantly,
any other limited partner of Danco LP who wanted to sign onto the Settlement Agreement,
would fund the Pike Loan to purchase the Majority Shares from Pike. Days later, the LP
Representatives determined that offering the opportunity to all limited partners of Danco
LP was impracticable and threatened to delay the deal, so the parties agreed instead that
Old MedApproach alone would purchase the Majority Shares. As a result, Old
MedApproach executed the Addendum, agreeing to be bound to the Irrevocable Proxy once
it received the Majority Shares from Pike.94
Daniel testified that the Addendum was prepared primarily by Popco’s attorney and
executed at its request.95 The Addendum, described by the Court of Chancery as a “drafting
monstrosity” and “not a model of clarity,”96 consists entirely of the following paragraph:
At any time that [Old MedApproach], or its affiliates, owners, designees or
nominees (or their respective successors or assigns) (each a “MedApproach
Person”) is a beneficial or record holder of any of the Shares or any of the
Proxy Shares, [Old MedApproach] hereby agrees (and agrees to cause each
other MedApproach Person to agree) that references in this Irrevocable
Proxy to “Stockholder” shall mean and include [Old MedApproach] (or such
MedApproach Person) with references to “the date hereof” in Section 2(a)
being instead a reference to the date of closing under the Agreement), and
94
Chancery Opinion, 273 A.3d at 829.
95
See id. at 829; App. to Opening Br. at A546 (W. B. Daniel Trial Testimony at 146–47). The
trial court found that Popco’s attorney “did not believe that the language of the Irrevocable Proxy,
standing alone, was sufficient to bind Old MedApproach to the Irrevocable Proxy.” Chancery
Opinion, 273 A.3d at 829.
96
Chancery Opinion, 273 A.3d at 830.
36
that [Old MedApproach] is bound (and [Old MedApproach] agrees not to
transfer any such shares to any other MedApproach Person unless such
transferee agrees in writing satisfactory to the [ ] Holders (other than W.
Bradley Daniel) to be bound) by this Irrevocable Proxy as the Stockholder;
provided, however, no MedApproach Person shall be deemed the
Stockholder for purposes of Section 2 hereof. [Old MedApproach] agrees to
duly authorize, execute and deliver a restated Irrevocable Proxy reflecting
the foregoing promptly after the closing under the Agreement and such other
agreements or documents as are reasonably necessary or appropriate to carry
out the intent of the foregoing.97
The existence of the Addendum suggests that the parties to the Irrevocable Proxy,
and Popco, understood at the time of its execution that the Irrevocable Proxy would not run
with the Majority Shares. If the terms of the Irrevocable Proxy provided it would run with
the Majority Shares, then there would be no need to execute an Addendum to bind Old
MedApproach. In short, the court found that “the parties entered into the Addendum to
ensure that the Irrevocable Proxy would bind the one subsequent owner that they knew
about — Old MedApproach.”98
The Addendum not only provides that Old MedApproach will become a
“Stockholder” for purposes of the Irrevocable Proxy, but also, it contains a transfer
restriction at the end of the first sentence (the “Transfer Restriction”). The Court of
Chancery found that the Transfer Restriction (1) “applies to any transfer by one
MedApproach Person to another MedApproach Person,” and (2) that “a MedApproach
Person only means an entity or individual affiliated with Old MedApproach, not a third
97
App. to Opening Br. at A039–40 (Irrevocable Proxy at 5–6).
98
Chancery Opinion, 273 A.3d at 814.
37
party.”99 Accordingly, the Transfer Restriction obligates Old MedApproach to ensure that
in any transfer to an affiliated entity, the affiliated entity agrees to be bound by the
Irrevocable Proxy. Further, the Addendum does not restrict a transfer to an unaffiliated
third party.100
The Transfer Restriction demonstrates that the parties to the Irrevocable Proxy did
not believe that it ran with the Majority Shares upon their sale. If it did run with the
Majority Shares, then there would be no need for the Transfer Restriction, let alone the
Addendum. Any buyer of the Majority Shares would already be bound by the Irrevocable
Proxy by its terms and there would be no need for the MedApproach Person-seller to
enforce the proxy against any MedApproach Person-buyer. The Transfer Restriction also
demonstrates that the parties knew how to restrict a transfer of the Majority Shares but only
elected to apply that restriction to a narrow set of transfers.101
These three aspects of the Irrevocable Proxy — the definitions of Stockholder and
Shares, the language in the Appointment Provision, and the presence of the Addendum and
Transfer Restriction — all indicate that the parties did not intend the Irrevocable Proxy to
run with the Majority Shares. In the face of these findings, along with the need to show in
clear and unambiguous language that the Irrevocable Proxy runs with the Majority Shares,
Daniel faces an uphill battle in demonstrating that the Court of Chancery erred. To win
99
Id. at 832.
Id. The trial court’s unchallenged interpretation of the Transfer Restriction reinforces that the
100
Addendum does not restrict a transfer to an unaffiliated third party (i.e., persons other than a
MedApproach Person).
101
Id.
38
the battle, he must show that the remaining provisions of the Irrevocable Proxy
unambiguously overcome the foregoing plain language. As explained below, Daniel fails
in his challenge.
2. The Non-Termination Provision
Daniel’s first two arguments on appeal concern the Non-Termination Provision in
the Irrevocable Proxy. He argues that the Non-Termination Provision “memorialized the
parties’ intent for the proxy to survive a sale of the shares and bind subsequent owners.”102
The Non-Termination Provision, found in paragraph five of the Irrevocable Proxy, reads
in its entirety, as follows:
The Stockholder agrees that such Irrevocable Proxy is coupled with an
interest sufficient in law to support an irrevocable power and shall not be
terminated by any act of the Stockholder (other than in connection with the
termination provisions of Section 4 hereof), by death or disability of the
Stockholder, by lack of appropriate power or authority or by the occurrence
of any other event or events other than as provided in Section 4 hereof.103
Daniel argues that the words “by any act of the Stockholder” and “or by the occurrence of
any other event or events” include the sale of the Majority Shares by the Stockholder.
Therefore, a sale of the Majority Shares by the Stockholder would not terminate the
Irrevocable Proxy. Under Daniel’s reading, the provision “communicates that only the
circumstances of Section 4 may result in termination of the Irrevocable Proxy.”104
102
Opening Br. at 21.
103
App. to Opening Br. at A035 (Irrevocable Proxy at 2, ¶ 5) (emphasis added).
Opening Br. at 21. The Court of Chancery referred to Section 4 as the “Termination Provision.”
104
The Termination Provision provides that:
This Irrevocable Proxy shall terminate immediately upon the occurrence of any of
the following: (i) the merger or other reorganization of [Danco GP] in connection
39
The Court of Chancery rejected Daniel’s reading of the Non-Termination Provision.
It found that “the more natural reading is that the Non-Termination Provision confirms that
the Stockholder cannot terminate the Irrevocable Proxy while owning the Majority Shares”
but “does not say anything about whether the Irrevocable Proxy binds a subsequent
owner.”105
On appeal, Daniel argues that the Court of Chancery erred with respect to the Non-
Termination Provision in two ways: (1) first, it erroneously read the provision, primarily
the language “by any act of the Stockholder,” against default principles in the Restatement
(Third) of Agency, which themselves are contrary to Delaware law,106 and (2) second, it
effectively read additional language into the provision to conclude that the broad catch-all
language “any other event or events” did not include a sale of the Majority Shares. 107 We
address each argument in turn.
a. The Court of Chancery’s Reference to Default Principles of Common Law Was
Not Essential to its Holding
Daniel argues that the phrase “any act of the Stockholder” in the Non-Termination
Provision includes the sale of the Majority Shares by the Stockholder. The Court of
with the formation of “Newco” as contemplated in the [Settlement Agreement], but
only if and to the extent the terms and conditions of the documentation pursuant to
which such merger or other reorganization is effected expressly refer to this
Irrevocable Proxy and expressly provide that this Irrevocable Proxy shall terminate
pursuant to such documents; or (ii) upon notice of termination given by the Holders
to the Stockholder. App. to Opening Br. at A035 (Irrevocable Proxy at 2, ¶ 4).
105
Chancery Opinion, 273 A.3d at 819.
106
Opening Br. at 22–23.
107
Id. at 28.
40
Chancery concluded that Daniel’s reading was “one possible reading” but “[t]he better
reading is that the concept of an ‘act of the Stockholder’ encompasses acts that the principal
might take to terminate the agency relationship while remaining the owner of the Majority
Shares.”108
Explaining why its reading was the better one, the Court of Chancery determined
that the Non-Termination Provision tracks the following categories in Section 3.13 of the
Restatement (Third) of Agency wherein, “[u]nless otherwise agreed, neither a power given
as security nor a proxy made irrevocable” will be terminated by:
(a) a manifestation revoking the power or proxy made by the person who
created it; or
...
(c) loss of capacity by the creator or the holder of the power or proxy; or
...
(e) death of the creator of the power or proxy, if the power or proxy is given
as security for the performance of a duty that does not terminate with the
death of its creator.109
According to the Court of Chancery, the language “by any act of the Stockholder” reflects
the common law principle stated in clause (a) of the Restatement that “a manifestation
revoking the power or proxy made by the person who created it” will not terminate an
irrevocable proxy “[u]nless otherwise agreed.”110 Thus, it found that the Non-Termination
108
Chancery Opinion, 273 A.3d at 820.
109
RESTATEMENT (THIRD) OF AGENCY § 3.13(2) (Am. Law. Inst. 2006), available at Westlaw
(database updated Oct. 2022).
110
Chancery Opinion, 273 A.3d at 819, 820. Daniel similarly argued that the phrase “death or
disability of the Stockholder” in the Irrevocable Proxy should be read to include the dissolution
and winding up of the Partnership. The Court of Chancery rejected Daniel’s “death or disability”
argument, concluding that “death or disability” is materially different than dissolution and that the
phrase, instead, mirrored the common law principles stated in clause (c) and (e) of the Restatement.
41
Provision, “is not a bespoke provision designed to make the Irrevocable Proxy run with the
Majority Shares.”111
Moreover, it determined that Daniel’s reading of the phrase “any act of the
Stockholder” conflicts with the common law principles in the Restatement.112 In Section
3.13(1), the Restatement (Third) provides:
A power given as security or an irrevocable proxy is terminated by an event
that
(a) discharges the obligation secured by the power or terminates the
interest secured or supported by the proxy, or
(b) makes its execution illegal or impossible, or
(c) constitutes an effective surrender of the power or proxy by the
person for whose benefit it was created or conferred.113
Comment b to Section 3.13 explains that, under the above circumstances “irrevocable
proxies will always terminate.”114
Accordingly, the Court of Chancery concluded that, absent express language to the
contrary, a sale of shares that is the subject of an irrevocable proxy terminates the
irrevocable proxy under the principle stated in clause (b). This is because:
Id. at 821–22 (“There are multiple difficulties with Daniel’s reading. First, death is not the same
as dissolution . . . Second, the reference to ‘death or disability’ tracks the common law concepts
framed in Sections 3.13(2)(c) and (e) of the Restatement . . . The clear distinction between the
consequences of death or disability and the consequences of a sale mean that the reference to ‘death
or disability’ in the Irrevocable Proxy does not cause the Irrevocable Proxy to run with the Majority
Shares.”). Daniel does not challenge this finding on appeal.
111
Id. at 819–20.
112
Id. at 820.
113
RESTATEMENT (THIRD) OF AGENCY § 3.13(1).
114
Id. at § 3.13 cmt. b.
42
After a sale, the grantor no longer has the right to vote the shares that are the
subject of the proxy. Instead, the right belongs to the subsequent owner. The
proxyholder cannot exercise the grantor’s right to vote because the grantor
no longer possesses that right. Consequently, absent specific and express
language to the contrary, an irrevocable proxy terminates “when it is no
longer possible for the proxyholder to vote because the grantor of the proxy
no longer owns the securities or membership interest.”115
The Court of Chancery added that “[o]nly if the purchaser both knows about an irrevocable
proxy and the irrevocable proxy contains plain and unambiguous language binding a
subsequent owner will the purchaser acquire the shares subject to the irrevocable proxy.”116
Daniel articulates three reasons why the Court of Chancery’s reliance on the
Restatement (Third) of Agency constitutes legal error. Although we address Daniel’s
arguments for completeness, we conclude that the Court of Chancery’s discussion of the
Restatement was not essential to its ultimate holding, and regardless of the merits (or lack
thereof) of his contentions about the Restatement, Daniel still fails to show that the
Irrevocable Proxy clearly and unambiguously provides that it runs with the Majority
Shares.
i. Daniel’s Reliance on Stream TV is Misplaced
First, Daniel argues that the trial court’s finding that the Irrevocable Proxy “tracked”
three of the five termination events listed in the Restatement was erroneous, and therefore,
115
Chancery Opinion, 273 A.3d at 820 (quoting RESTATEMENT (THIRD) OF AGENCY § 3.13 cmt.
b).
116
Id. (emphasis in original).
43
under this Court’s decision in Stream TV,117 it was improper for the trial court to rely on
the Restatement (Third) to interpret the contractual language.118
Daniel’s’ reliance on Stream TV is misplaced. The question before this Court in
Stream TV was whether the approval of the Class B stockholders of Stream TV Networks,
Inc. (“Stream Inc.”), was required before Stream Inc. could enter into an agreement to
transfer and assign all rights, title and interest in all of the company’s assets for the benefit
of certain of its creditors (the “Stream Omnibus Agreement”).119 Stream Inc.’s charter
provided that a majority vote of the Class B stockholders was required for the company to
undertake certain corporate actions, including an “Asset Transfer.” The charter defined
“Asset Transfer” as a “sale, lease or other disposition of all or substantially all of the assets
or intellectual property” of Stream Inc., and the granting of certain intellectual property
licenses of Stream Inc.120 This Court found that the plain meaning of “other disposition”
included the transfer and assignment of all rights, title and interest in all of the company’s
assets for the benefit of its creditors.121 Therefore, the Stream Omnibus Agreement needed
to be approved by the majority of Stream Inc.’s Class B stockholders.
In so holding, this Court reversed the Court of Chancery’s determination that Stream
Inc.’s board of directors unilaterally could cause Stream Inc. to enter into the Stream
117
279 A.3d 323.
118
Opening Br. at 23–24.
119
Stream TV, 279 A.3d at 340.
120
Id. at 338 (emphasis added).
121
Id. at 340.
44
Omnibus Agreement. The Court of Chancery had found that although the Stream Omnibus
Agreement contemplated an “Asset Transfer,” the charter provision “tracked” Section 271
of the Delaware General Corporation Law and thus “warrant[ed] the same
interpretation.”122 Rather than looking to the plain language of Stream Inc.’s charter, the
Court of Chancery looked to Section 271 as an interpretive guide. It found that at the time
of the enactment of Section 271’s predecessor statute, there was a common law insolvency
exception in Delaware which allowed an insolvent company’s board of directors to
unilaterally sell the assets of the company for the benefit of its creditors. In effect, the
Court of Chancery overrode the plain language of Stream Inc.’s charter in favor of a
common law exception it concluded existed in Delaware and was not superseded by
Section 271. We also clarified in our Stream TV opinion that the insolvency exception
identified by the Court of Chancery was superseded by the predecessor statute to Section
271, if it ever existed in Delaware at all.123
Daniel’s reliance on Stream TV fails because the Irrevocable Proxy is not plain and
unambiguous that it runs with the Majority Shares. The Court of Chancery did not ignore
the plain language of the Irrevocable Proxy in favor of the common law rules in the
Restatement (Third). Rather, it found that “[i]n the abstract and read in isolation, the phrase
‘any act of the Stockholder’ is susceptible to two meanings” and it looked to the
122
Id. at 334 (quoting Stream TV Networks, Inc. v. SeeCubic, Inc., 250 A.3d 1016, 1045 (Del. Ch.
2020)).
123
Id. at 343.
45
Restatement (Third) to determine the more “persuasive” reading.124 This is evident by the
court’s stating that Daniel’s reading of that provision was only “one possible reading,” as
well as by the various other provisions, including the Addendum, which it found created
ambiguity. The Court of Chancery’s analysis could have stopped there because under
Delaware law, ambiguity in an irrevocable proxy is construed against the rights of the
proxy holder.125 If an irrevocable proxy does not unambiguously provide that it will run
with the shares in a sale to a subsequent owner, then it does not do so. As the Court of
Chancery concluded, “the presence of ambiguity alone is sufficient to defeat Daniel’s
argument.”126
ii. The Date of Publication of the Restatement (Third) is Not Dispositive
Second, Daniel places much weight on the fact that the Restatement (Third) was not
published until 2006, nine years after the parties drafted and executed the Irrevocable
Proxy. He argues that as a result, the parties could not possibly have drafted the Irrevocable
124
Chancery Opinion, 273 A.3d at 821 (“Read against the backdrop of the default common law
rules concerning scenarios when irrevocable proxies terminate, given the presence of the
Addendum, and without any explicit reference in the Non-Termination Provision to a sale of the
Majority Shares, only Mrs. Hawkins’ reading is persuasive.”); see also Concord Real Estate CDO
2006-1, Ltd. v. Bank of America N.A., 996 A.2d 324, 332 (Del. Ch. 2010) (“I look to the common
law because this body of jurisprudence provides a backdrop of standard default rules that
supplement negotiated agreements and fill gaps when a contract is incomplete, whether by
inadvertence or design.”), aff’d, WL 743405 (Del. 2011) (TABLE).
125
In other words, it did not need to “confirm” what the “more natural reading” was. See Chancery
Opinion, 273 A.3d at 819 (“Read in context and against the backdrop of the common law, the more
natural reading is that the Non-Termination Provision confirms that the Stockholder cannot
terminate the Irrevocable Proxy while owning the Majority Shares.”).
126
Id. at 821.
46
Proxy with the default principles articulated in the Restatement (Third).127 This argument
is unpersuasive for the same reason stated above.
Because the Restatement (Third) is an articulation of existing common law,128 the
relevant question is whether at the time the Irrevocable Proxy was executed, Delaware
common law supported the principle cited in the Restatement (Third). Daniel did not cite
Delaware case law that establishes his view of the common law in Delaware in 1997 when
the Irrevocable Proxy was executed. However, we observe that the Court of Chancery
recognized a principle similar to that stated in comment b several times prior to 1997. In
1941, the court recognized that “[t]he right to vote shares of corporate stock, having voting
powers, has always been incident to its legal ownership.129 And in 1993, it stated that
Delaware law presumes that “in the sale of the underlying stock . . . the seller is contracting
to sell and assigns all of its rights, title and interest in the stock.”130 Similarly, in 1875, the
127
Opening Br. at 24.
128
See, e.g., Samson v. Smith, 560 A.2d 1024, 1027–28 (Del. 1989) (observing that the Restatement
(Second) of Torts is “merely a formulation of well established common law principles”).
129
In re Giant Portland Cement Co., 21 A.2d 697, 701 (Del. Ch. 1941); see also Giuricich v.
Emtrol Corp., 449 A.2d 232, 239 (Del. 1982) (“As a general rule the right to vote shares of
corporate stock having voting powers at stockholders’ meetings is an incident of their legal and
record ownership.”) (citing Tracy v. Brentwood Village Corp., 59 A.2d 708, 709 (Del. Ch. 1948)));
Norton v. Digital Applications, Inc., 305 A.2d 656, 659 (Del. Ch. 1973) (“The right to vote shares
of stock issued by a Delaware corporation is an incident of legal ownership.”).
130
Commonwealth Assocs., 641 A.2d at 158. In considering the validity and enforceability of a
negotiated provision providing for the retention of a “dangling” right to vote as of the record date
in a post-record date sale of corporate stock, Chancellor Allen stated that “the legally presumed
implication, in a sale of the underlying stock, would be that the seller is contracting to sell and
assign all of its rights, title and interest in the stock, including its right to grant a consent or a
revocation with respect to a past record date, and that upon request the seller will, in good faith,
take such ministerial steps as are necessary (e.g., granting proxies) to effectuate that transfer.” Id.47
United States Supreme Court recognized the principle that all rights and obligations follow
shares in a transfer of stock.131 These cases stand for the general proposition that, when
legal ownership of stock is transferred, the right to vote such stock is transferred too.
Although Genger Trial came later, we note that the principle of law articulated in Genger
Trial requiring an irrevocable proxy to clearly and unambiguously state that it runs with
shares in a transfer to a third party,132 suggests that the default common law rule is that
voting rights follow the shares in a stock transfer.
In any event, we need not resolve the debate about whether the rule provided in
comment b of the Restatement (Third) — or some other rule as Daniel contends — was
firmly established common law in Delaware at the time the Irrevocable Proxy was executed
because the Court of Chancery’s discussion of the Restatement (Third) was not essential
to its finding that the Irrevocable Proxy does not clearly and unambiguously state that it
shall run with the Majority Shares. 133 Daniel’s arguments fail because at the most, his
arguments show only that there are two reasonable ways to read the Non-Termination
131
Webster v. Upton, 91 U.S. 65, 70 (1875) (“When an original subscriber to the stock of an
incorporated company, who is so bound to pay the instalments on his subscription from time to
time as they are called in by the company, transfers his stock to another person, such other person
is substituted not only to the rights, but to the obligations, of the original subscriber, and he is
bound to pay up the instalments called for after the transfer to him.”) (citing JOSEPH K. ANGELL &
SAMUEL AMES, Treatise on the Law of Private Corporations § 534 (4th ed. 1852))).
Genger Trial, 2010 WL 2901704, at *20 (“Even if the language of the Proxy was ambiguous–
132
which it is not–public policy concerns require that the Proxy be strictly construed.”).
133
For the same reasons, we need not address Daniel’s third and final argument that the
Restatement (Second) of Agency § 139 cmt. a (Am. Law Inst. 1958), which was the provision in
effect when the Irrevocable Proxy was executed, conflicts with comment b, which he contends
“represented a material change in the default principles.” Opening Br. at 24–25; Reply Br. at 4.
48
Provision and, thus, the Irrevocable Proxy is ambiguous.134 For the public policy reasons
discussed above, a showing of ambiguity requires us to construe the Non-Termination
Provision narrowly, as the Court of Chancery did below, against the rights of the proxy
holder.
b. The Court of Chancery Did Not Err in Concluding that the Language “Any Other
Event or Events” Does Not Include a Sale of the Majority Shares
The Non-Termination Provision states that the Stockholder agrees that the proxy
will not terminate in the specific situations discussed above, “or by the occurrence of any
other event or events other than as provided in Section 4 hereof.”135 Daniel argues that this
language serves as a catch-all for acts of the Stockholder and encompasses a sale of the
Majority Shares.136 The Court of Chancery acknowledged the catch-all nature of this
language but concluded that it was subject to “at least two interpretations.”137 Moreover,
it concluded that “against the backdrop of the common law rules, in the presence of the
Addendum, and in the absence of any reference to a transfer of the Majority Shares,” only
one reading was reasonable, namely, that the catch-all encompassed only those actions
taken by the Stockholder while the Stockholder owns the Majority Shares.138 On appeal,
Daniel argues that the Court of Chancery improperly read the language “while the
134
See Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752, 760 (Del. 2022) (“Ambiguity is
present ‘only when the provisions in controversy are reasonably or fairly susceptible of different
interpretations or may have two or more different meanings.’”) (quoting Rhone-Poulenc Basic
Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992))).
135
App. to Opening Br. at A035 (Irrevocable Proxy at 2, ¶ 5).
136
Opening Br. at 28.
137
Chancery Opinion, 273 A.3d at 822.
138
Id.
49
Stockholder owns the shares” into the Non-Termination Provision and did not give effect
to the plain meaning of the catch-all language, which would include a sale of the Majority
Shares as “any other event or events.”139
First, Daniel’s contends that no Delaware authority requires the use of the word
“transfer” or “sale” to manifest the parties’ intent for a proxy to run with the shares.140
However, the Court of Chancery did not hold that, for an irrevocable proxy to run with
shares, the proxy instrument must use the magic words “transfer” or “sale.” Rather, the
Court of Chancery held that for an irrevocable proxy to run with shares, the proxy
instrument must evince the parties’ clear and unambiguous intent for it to do so. In this
case, the absence of the words “transfer” or “sale” supports the Court of Chancery’s finding
that the Irrevocable Proxy did not evince such an intent, particularly in the face of how the
word “transfer” is used elsewhere in the Irrevocable Proxy, the presence of the Addendum,
and its unchallenged findings as to the Appointment Provision and the definitions of
“Stockholder” and “Shares.”
The Court of Chancery also relied on its opinion in Genger Trial,141 which we
affirmed in relevant part.142 There, the Court of Chancery found that the absence of
language regarding transferees in the assignment provision indicated the parties did not
intend for the proxy to follow the shares. The Court of Chancery stated:
139
Opening Br. at 28.
140
Id. at 29; Reply Br. at 9.
141
2010 WL 2901704.
Genger, 26 A.3d at 198 (“The Proxy contains no provision that would bind any subsequent
142
owner of those shares.”) (emphasis in original).
50
If [the proxyholder] wanted to keep the Proxy after a transfer, he could have
easily inserted clear language–such as “this Proxy shall bind any subsequent
transferees”–into the Proxy to that effect. He did not, and thus there is no
reason found in the text of the Proxy to indicate that it is binding upon the
[subsequent transferee].143
Daniel does not attempt to distinguish Genger Trial in his briefing on appeal, and the same
reasoning applies here.
Further, Daniel reads the Non-Termination Provision in a vacuum, apart from its
context. Mrs. Hawkins more persuasively considers the Non-Termination Provision in the
context of the structure of the entire Irrevocable Proxy. The Non-Termination Provision
begins by saying that “[t]he Stockholder agrees,” meaning Pike. The recitals and
Appointment Provision indicate that the Irrevocable Proxy applies only to shares held by
the Stockholder. Absent the explicit language of a “transfer” or “sale,” a reasonable
reading of the language “any other event” is that, consistent with the rest of the Non-
Termination Provision and the Irrevocable Proxy, it only applies to events occurring when
the Stockholder (Pike and now the Partnership) owns the shares. Daniel’s response that
“an Irrevocable Proxy always represents a commitment of the stockholder at the time of
execution since such person is the only one that has the power to grant the authority to the
proxy holders to vote the shares”144 is unavailing because the definition of “Stockholder”
only references Pike, and as explained by the Addendum, Old MedApproach or any other
MedApproach Person who holds any of the Shares or any of the Proxy Shares and agrees
143
Genger Trial, 2010 WL 2901704, at *20.
144
Reply Br. at 6.
51
to be bound by the Irrevocable Proxy. Again, the Court of Chancery’s unchallenged
findings as to the significance of the definitions of “Shares” and “Stockholder,” or the
Appointment Provision, support an alternative reasonable reading of the Irrevocable Proxy,
and at the very least, render the contract ambiguous.
We find Daniel’s counterargument that the “provision elsewhere makes clear that
circumstances in which the Stockholder no longer owns the shares (e.g., the death of the
Stockholder) will not affect a termination” more persuasive.145 Still, it only rises to the
level of one possible interpretation of the Non-Termination Provision. It does not
overcome the Court of Chancery’s unchallenged findings and unambiguously provide that
the Irrevocable Proxy shall run with the Majority Shares.
Finally, Daniel claims that the Court of Chancery erred as a matter of law by relying
on the existence of the Addendum because the Addendum was a separate agreement apart
from the Irrevocable Proxy and it “was drafted by Popco and its counsel, not the giver of
the Irrevocable Proxy.”146 He further argues that even if we were to consider the existence
of the Addendum, the Addendum was only “belt and suspenders” and did not reflect an
intent for the Irrevocable Proxy to run with the shares.
To begin with, the Addendum is best viewed as part of the Irrevocable Proxy and
not as extrinsic evidence, as Daniel claims.147 The Addendum is on “the face of the
145
Opening Br. at 29; Reply Br. at 8–9.
146
Opening Br. at 30.
147
See Chancery Opinion, 273 A.3d at 811 (“In broad strokes, the Irrevocable Proxy consists of a
preamble with recitals, fifteen operative provisions, and the Addendum.”).
52
contract”148 and is within “its four corners.”149 It is found in a single paragraph on the
signature page to the Irrevocable Proxy — the same signature page that Pike signed as the
Stockholder.150 It was also executed on the same day as the Irrevocable Proxy.
Moreover, other facts undercut Daniel’s argument, including the Court of
Chancery’s factual finding that Popco saw a need for the Addendum because it did not
believe the Irrevocable Proxy would otherwise run with the Majority Shares.151 Based on
the record, the trial court’s findings are not clearly erroneous.
Finally, we find Daniel’s “belt-and-suspenders” argument unpersuasive because of
the lack of clear language in the proxy instrument that the Irrevocable Proxy will run with
the shares and the presence of the Transfer Restriction. A “belt-and-suspenders” reading
cuts against our preference to avoid redundancy in interpreting contracts. 152 The
148
See Evidence, BLACK’S LAW DICTIONARY (11th ed. 2019) (defining “extrinsic evidence” as
“[e]vidence relating to a contract but not appearing on the face of the contract because it comes
from other sources, such as statements between the parties or the circumstances surrounding the
agreement”).
149
See GMG Cap. Invs., LLC v. Athenian Venture P’rs. I, L.P., 36 A.3d 776, 783 (Del. 2012)
(observing that, when applied, “the parol evidence rule bars the admission of evidence from
outside the contract’s four corners to vary or contradict [ ] unambiguous language”).
150
App. to Opening Br. at A039–40 (Irrevocable Proxy at 5–6).
151
Chancery Opinion, 273 A.3d at 829 (citing W. B. Daniel Trial Testimony at 146–47).
152
Compare Osborn, 991 A.2d at 1159 (“‘We will read a contract as a whole and we will give
each provision and term effect, so as not to render any part of the contract mere surplusage.’ We
will not read a contract to render a provision or term ‘meaningless or illusory.’”) (first citing Kuhn
Construction, Inc. v. Diamond State Port Corp., 2010 WL 779992, at *2 (Del. Mar. 8, 2010); then
citing Sonitrol Holding Co. v. Marceau Investissements, 607 A.2d 1177, 1183 (Del. 1992))), with
Julius v. Accurus Aerospace Corp., 2019 WL 5681610, at *11 (Del. Ch. Oct. 31, 2019) (“While
redundancy is sought to be avoided in interpreting contracts, this principle of construction does
not go so far as to counsel the creation of contract meaning for which there is little or no support
in order to avoid redundancy.”) (citing U.S. W., Inc. v. Time Warner Inc., 1996 WL 307445, at *15
(Del. Ch. June 6, 1996))), aff’d, 241 A.3d 220 (Del. 2020). See also ANTONIN SCALIA & BRYAN
A. GARNER, Reading Law: The Interpretation of Legal Texts 176 (2012) (“If a provision is
53
Addendum does not solely serve to clarify that the Irrevocable Proxy is binding on Old
MedApproach; it also contains the Transfer Restriction. The Court of Chancery found that
the Transfer Restriction applies only to MedApproach Persons, as defined in the
Addendum, but not to unaffiliated third parties. Daniel does not challenge this
interpretation on appeal. Thus, the Addendum serves a further purpose, which itself
demonstrates that the Irrevocable Proxy does not otherwise bind unaffiliated third parties.
3. The Assignment Provision
Daniel’s third and final argument on appeal is that the Court of Chancery erred by
not giving “effect to all of the terms of the Irrevocable Proxy and improperly limiting the
assignment clause of the Irrevocable Proxy so as not to bind assigns of the Stockholder.”153
The Assignment Provision, found in paragraph 15 of the Irrevocable Proxy, states in its
entirety:
This Irrevocable Proxy and the rights of the Holders under this Irrevocable
Proxy may not be assigned except that (a) any Holder may, with the consent
of the remaining Holders, transfer such Holder’s rights to any person who is,
or is affiliated with, a limited partner of the Partnership, and (b) the Holders
may act pursuant to this Irrevocable Proxy, in voting the Proxy Shares or
otherwise, through any duly authorized officer or employee of [Danco GP].
This Irrevocable Proxy shall be binding upon and inure to the benefit of
Stockholder and the Holders and their respective heirs, devises, legatees,
personal representatives, agents and permitted assigns.154
susceptible of (1) a meaning that gives it an effect already achieved by another provision, or that
deprives another provision of all independent effect, and (2) another meaning that leaves both
provisions with some independent operation, the latter should be preferred.”).
153
Opening Br. at 3; Reply Br. at 14.
154
App. to Opening Br. at A037 (Irrevocable Proxy at 4, ¶ 5).
54
The Assignment Provision begins with a blanket prohibition on assignment by the
Holders in the first sentence (the “No-Assignment Clause”), followed by two exceptions
to the blanket prohibition in clauses (a) and (b) (the “Holder Exceptions”). The final
sentence identifies the beneficiaries of the Irrevocable Proxy and those who will be bound
by the Irrevocable Proxy (the “Bound Parties Clause”).
Daniel argues that the Bound Parties Clause causes the Irrevocable Proxy to bind
the Stockholder and his permitted assigns, which includes purchasers of the Majority
Shares. Rejecting this argument, the Court of Chancery first held that the phrase “permitted
assigns” does not include purchasers of the Majority Shares. It then held that, even if
Daniel is correct that the phrase “permitted assigns” included subsequent purchasers, the
“only reasonable” reading of the Bound Parties Clause is that it binds only the “permitted
assigns” of the Holders, not those of the Stockholder.155 The Court of Chancery explained
that this reading was the “only reasonable” one because it applies the rule of the last
antecedent,156 accords with the “more natural reading” of the sentence, and “better fits the
155
Chancery Opinion, 273 A.3d at 825–26.
156
The rule of the last antecedent is a canon of construction which provides that:
Referential and qualifying words and phrases, where no contrary intention appears,
refer solely to the last antecedent. The last antecedent is the last word, phrase, or
clause that can be made an antecedent without impairing the meaning of the
sentence. Thus a proviso usually applies to the provision or clause immediately
preceding it. A qualifying phrase separated from antecedents by a comma is
evidence that the qualifier is supposed to apply to all the antecedents instead of only
to the immediately preceding one.
2A NORMAN J. SINGER & SHAMBIE SINGER, Sutherland Statutes and Statutory Construction §
47:33 (7th ed. 2010), available at Westlaw (database updated Nov. 2022) (internal quotation
marks and footnotes omitted); see also Rubick v. Sec. Instrument Corp., 766 A.2d 15, 18 (Del.
2000) (applying the rule that “[r]eferential and qualifying words and phrases, where no contrary
55
structure of the Assignment Provision, which starts with the No-Assignment Clause,
continues with the Holder Exceptions, and finishes with the Bound Parties Clause and its
specific reference to ‘permitted assigns.’”157
a. The Court of Chancery Did Not Err in Finding That “Permitted Assigns” Does
Not Include Transferees
As a Delaware court, we interpret “contract terms according to their plain, ordinary
meaning.”158 Daniel argues that the Court of Chancery committed legal error in finding
that the terms “assigns” and “transferees” “are not equivalent and the Irrevocable Proxy
needed to use the specific word ‘transferee,’ not ‘assign,’ to bind subsequent owners.”159
He asserts that, although the Court of Chancery properly looked to the dictionary definition
of “assignment,” its interpretation of the Bound Parties Clause was “inconsistent with the
plain dictionary definition of an assignment as encompassing the transfer of property from
one person to another,” a definition we recognized in Stream TV.160
We disagree. Although it is true, as we discussed in Stream TV, that an assignment
may be a “type of transfer or relinquishment of property[;]”161 context matters in
intention appears, refer solely to the last antecedent”) (quoting 2A NORMAN J. SINGER, Sutherland
Statutes and Statutory Construction, § 47.33 (6th ed. 2000))).
157
Chancery Opinion, 273 A.3d at 825–26.
158
Alta Berkeley VI C.V., 41 A.3d at 385.
159
Opening Br. at 34–35.
160
Id. at 35 (referencing Stream TV, 279 A.3d at 340–41).
161
Stream TV, 279 A.3d at 340. As discussed herein, the question before this Court in Stream TV
was whether the “transfer and assignment of all rights, title and interest in all of [Stream TV Inc.’s]
assets” for the benefit of creditors was “a sale, lease, or other disposition” such that it would require
a majority Class B stockholder vote under Stream TV Inc.’s charter. Id. In interpreting the
charter’s plain language, we looked to dictionary definitions of “disposition” and “assignment,”
and read the charter as a whole, particularly looking to the definition of “[t]ransfer” and the usage
56
determining which “type” of transfer.162 “[I]t is well established that a court interpreting
any contractual provision . . . must give effect to all terms of the instrument, must read the
instrument as a whole, and, if possible, reconcile all the provisions of the instrument.”163
In the context of the Irrevocable Proxy, Daniel’s plain reading of the term is not nuanced
enough, particularly given the structure of the Assignment Provision, and how the term
“transferee” is used elsewhere in the Irrevocable Proxy. His reading overlooks the
fundamental nature of a proxy as an instrument that divides the economic rights and the
voting rights that attach to share ownership.
Comparing dictionary definitions of “transfer,”164 to definitions of “assignee,”165 the
Court of Chancery found that an “assignee generally does not receive the full bundle of
of “disposition” therein. From this analysis, we found that “[a]n assignment of all rights, title and
interest in the assets of the [c]ompany to [another] is a ‘disposition’ because it is a type of transfer
or relinquishment of property.” Id. (emphasis added). As the Court of Chancery found here, an
assignment is a narrower term than transfer; it is a type of transfer. Chancery Opinion, 273 A.3d
at 826 (explaining “[a] transfer is the broader term, and it generally refers to a change involving
all aspects of ownership” whereas “[a]n assignment is the narrower term, and it generally refers to
a change involving specific rights”). The Stream Omnibus Agreement provided for a broad type
of transfer and assignment. By its language it “transferr[ed] and assign[ed] all rights, title and
interest.” Stream TV, 279 A.3d at 340 (emphasis added). Here, “assigns” is used in a narrower
sense.
162
See Chicago Bridge & Iron Co. N.V. v. Westinghouse Electric Co. LLC, 166 A.3d 912, 913–14
(Del. 2017) (“In giving sensible life to a real-world contract, courts must read the specific
provisions of the contract in light of the entire contract.”); see also SCALIA & GARNER, supra note
152, at 69 (observing that the ordinary-meaning canon, that “[w]ords are to be understood in their
ordinary, everyday meanings—unless the context indicates that they bear a technical sense,”
“governs constitutions, statutes, rules, and private instruments”).
163
See Alta Berkeley VI C.V., 41 A.3d at 385–86 (quoting Elliot Assoc., L.P. v. Avatex Corp., 715
A.2d 843, 854 (Del. 1998)).
164
Chancery Opinion, 273 A.3d at 826 (citing Transfer, BLACK’S LAW DICTIONARY (11th ed. 2019)
(“A conveyance of title or property from one person to another.”).
165
Id. (citing Assignee, BLACK’S LAW DICTIONARY (11th ed. 2019) (“Someone to whom property
rights or powers are transferred by another.”) and RESTATEMENT (SECOND) OF CONTRACTS § 316
57
rights associated with the underlying property interest, but rather only a subset of those
rights.”166 Additional dictionary definitions suggest that an “assignee” is the word
commonly used for someone who receives a “right” underlying the property interest.167
Accordingly, the Court of Chancery found that the terms are used differently in
different contexts.168 The court observed that this difference “is perhaps best reflected in
our alternative entity statutes, where an effort to transfer an interest in a limited partnership
or limited liability company results in the recipient becoming an assignee who possesses
economic rights, but not governance rights.”169 The same is true in contract law, where, as
the court observed, “the original counterparty remains bound under the contract
notwithstanding the assignment, unless the new party is substituted through a novation.”170
Although we agree with the Court of Chancery that “transferee” and “assigns” are
used differently in different contents, we recognize that the terms can have overlapping
meanings.171 Resolution here hinges on whether the terms were used differently in this
(Am. Law. Inst. 1981), available at Westlaw (database updated Oct. 2022) (defining
“[a]ssignment” as “the transfer of a right by the owner (the oblige or assignor) to another person
(the assignee)”)).
166
Id.
167
Assignee, MERRIAM-WEBSTER, https://www.merriam-webster.com/dictionary/assignee (last
visited Dec. 21, 2022) (“[A] person to whom a right or property is transferred.”).
168
See SCALIA & GARNER, supra note 152, at 70 (observing that most common English words
have more than one ordinary meaning and stating that “[o]ne should assume the contextually
appropriate ordinary meaning unless there is reason to think otherwise”).
169
Chancery Opinion, 273 A.3d at 826–27 (citing 6 Del. C. § 17-702(a)).
170
Id. at 827 (citing Schwartz v. Centennial Ins. Co., 1980 WL 77940, at *2 (Del. Ch. Jan. 16,
1980) and P.C. Connection, Inc. v. Synygy Ltd., 2021 WL 57016, at *14 (Del. Ch. Jan. 7, 2021)).
171
See Transferee, MERRIAM-WEBSTER, https://www.merriam-webster.com/dictionary/transferee
(last visited Dec. 21, 2022) (“[A] person to whom something is transferred or conveyed.”).
58
context.172 The structure of the Assignment Provision along with the divergent uses of the
terms elsewhere in the Irrevocable Proxy support the Court of Chancery’s conclusion that
they were used differently here, and that the term “permitted assigns” does not include
transferees.
The word “assigns” in the Assignment Provision takes on a different meaning than
the word “transferee” does in the Addendum. Their respective uses are consistent with the
Court of Chancery’s determination that, in the Irrevocable Proxy, an assignee is one who
receives only a subset of property rights, whereas a transferee is one who receives all
property rights associated with the underlying property interest. In the Assignment
Provision, “permitted assigns” are those who have been assigned the “Irrevocable Proxy”
or the “rights of the Holders.” The Assignment Provision is structured as a prohibition on
the assignment of “the rights of the Holders,” followed by two exceptions. The first
exception allows a Holder who has the consent of the other Holders to “transfer such
Holder’s rights” to “any person affiliated with a limited partner of the Partnership.” The
second exception allows a Holder “in voting the Proxy Shares or otherwise” to do so
through a duly authorized officer or employee of Danco GP.
On the other hand, “transferee” is used in the Addendum to refer to someone who
has been transferred legal ownership of the shares, rather than only the underlying voting
172
Lorillard Tobacco v. Am. Legacy Found., 903 A.2d 728, 740 (Del. 2006) (“There may be more
than one dictionary definition, and parties may disagree on the meaning of the definition as applied
to their case, but if merely applying a definition in the dictionary suffices to create ambiguity, no
term would be unambiguous. A court must accept and apply the plain meaning of an unambiguous
term in the context of the contract language and circumstances, insofar as the parties themselves
would have agreed ex ante.”) (internal quotation marks and footnotes omitted)).
59
rights. The Addendum documents Old MedApproach’s agreement “not to transfer any
such shares to any other MedApproach Person unless such transferee agrees in writing
satisfactory to the [ ] Holders (other than W. Bradley Daniel) to be bound).” 173 The fact
that the parties could have used “transferee” in the Assignment Provision, as they did
elsewhere in the Irrevocable Proxy, but chose not to, supports the Court of Chancery’s
reading as a reasonable one.
The Court of Chancery also relied on its decision in Genger Trial with respect to
transferee language, discussed above. Daniel argues that no Delaware court has held that
the drafters of an irrevocable proxy need to use the magic word “transferee” for the
irrevocable proxy to run with the shares and be binding on a subsequent owner.174 But the
Court of Chancery did not require the use of the word “transferee” for an irrevocable proxy
to be binding. Rather, it found that the absence of the words “transferee,” “transfer,” or
“sale,” in the context of the plain language of the Irrevocable Proxy, indicated that the
instrument was not intended to run with a transfer of the underlying shares. Here, the
language of the Assignment Provision does not clearly provide that the Irrevocable Proxy
will run with the shares. In sum, considering that the fundamental nature of an irrevocable
proxy involves a division of property rights, the structure of the Assignment Provision, and
the divergent uses of the terms in the Irrevocable Proxy, the Court of Chancery’s finding
that permitted assigns does not include transferees was not legal error.
173
App. to Opening Br. at A039 (Irrevocable Proxy at 5).
174
Opening Br. at 35–36.
60
b. Nor does the Bound Parties Clause Provide that the Irrevocable Proxy Runs with
the Majority Shares
Even if Daniel is right that the term “assigns” includes “transferees” in this case, his
reliance on the Assignment Provision fails because the term “permitted assigns” does not
clearly apply to those of the Stockholder. The Court of Chancery found that the plain
language of the sentence was ambiguous as to whether it bound permitted assigns of the
Stockholder in addition to those of the Holders. It then looked to the structure of the
provision and applied the rule of the last antecedent and grammatical canons to conclude
that the Bound Parties Clause only binds permitted assigns of the Holders, not those of the
Stockholder.
The rule of the last antecedent is a settled principle of interpretation.175 It provides
that “referential and qualifying words and phrases, where no contrary intention appears,
refer solely to the last antecedent.”176 Read according to the rule, the adjective “their” in
the Bound Parties Clause modifies the only the nearest antecedent: “the Holders.”
Therefore, only the permitted assigns of the Holders are bound, not the permitted assigns
of the Stockholder.
On appeal, Daniel argues that reliance on the rule of the last antecedent was legal
error because application of the rule here, “violate[s] [the] cardinal principle” that courts
175
See, e.g., Rag Am. Coal Co. v. AEI Res., Inc., 1999 WL 1261376, at *4 (Del. Ch. Dec. 7, 1999)
(observing that ordinarily, qualifying words or phrases, where no contrary intention appears,
usually relate to the last antecedent) (internal quotation marks omitted).
176
Rubick, 766 A.2d at 18 (quoting SINGER, supra note 156).
61
are “to give effect to all terms of the instrument.”177 According to Daniel, the Stockholder
is already bound by the Irrevocable Proxy so if the adjective “their” does not reach back
through “Holders” to modify “Stockholder” then the word “Stockholder” serves no purpose
in the sentence. It becomes surplusage.
The Court of Chancery acknowledged that Daniel’s reading is reasonable, but it
concluded that the Bound Parties Clause is ambiguous. It noted that the placement of an
adjective often creates ambiguity.178 Here, the ambiguity is compounded by the omission
of an Oxford comma.179 The Court of Chancery reconstructed the Bound Parties Clause,
this time eliminating an “and” and placing an Oxford comma:
If “their” applied to both “Stockholder” and “the Holders,” then the natural
way to write the sentence would be to say that “[t]his Irrevocable Proxy shall
be binding upon and inure to the benefit of Stockholder, the Holders, and
their respective heirs, devises, legatees, personal representatives, agents and
permitted assigns.”180
If the drafters of the Irrevocable Proxy had written the Bound Parties Clause as laid
out above, Daniel’s reading would be the most natural one. But they did not do so. Daniel
argues that “[a] court applying Delaware law will not allow the imprecise placement of
177
Opening Br. at 33–34 (citing Elliot Assocs., 715 A.2d at 854).
178
Chancery Opinion, 273 A.3d at 825.
179
An Oxford comma (aka a serial comma or Harvard comma) is a comma that separates the last
from the next-to-last item in a list of more than two. It normally follows a conjunction. See BRYAN
A. GARNER, Garner’s Modern English Usage 897, 981 (5th ed. 2022)).
180
Chancery Opinion, 273 A.3d at 825–26. Accord GARNER, supra note 179, at 982, 985.
Garner explains that proponents of the Oxford comma “point out that including it never creates
an ambiguity, whereas omitting it fairly often does.” GARNER, supra note 179, at 982. In line
with the weight of authority, Garner himself favors a bright line rule of including an Oxford
comma to ensure consistency and clarity. GARNER, supra note 179, at 985.
62
adverbs and commas to alter the otherwise plain meaning of a contractual provision or to
frustrate the overall plan or scheme memorialized in the parties’ contract.”181 But the Court
of Chancery’s reasoning for applying the rule of the last antecedent and other grammatical
canons was precisely because the provision was ambiguous.182
Mrs. Hawkins interpretation also fits better with the grammatical rule of pronoun-
antecedent agreement. The plural possessive “their” agrees with the plural antecedent “the
Holders,” not the singular antecedent “Stockholder.”183 Moreover, it brings the Bound
Parties Clause into compliance with the grammatical rules governing determiners.184
181
Reply Br. at 15 (citing Symbiont.iO, Inc. v. Ipreo Hldgs., LLC, 2021 WL 3575709, at *35 (Del
Ch. Aug. 13, 2021) (internal quotation marks omitted)). Accord E.I. du Pont de Nemours & Co.
v. Green, 411 A.2d 953, 956 (Del. 1980) (“[T]he [last antecedent] rule has its limitations, as stated
in 2A Sutherland, Statutes and Statutory Constructions, § 47.33 (4th [e]d. 1973), ‘When the sense
of the entire act requires that a qualifying word or phrase apply to several preceding or succeeding
sections, the word or phrase will not be restricted to its immediate antecedent.’”) (emphasis
added)); MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *7 (Del. Ch. Dec.
30, 2010) (“In reaching that conclusion, I am mindful that grammar and punctuation are of
secondary importance to a court in interpreting a contract where such grammar and punctuation
reasonably would frustrate the parties’ clear intent as evinced from the language used in the
contract. Indeed, a court should ‘not allow the imprecise placement of adverbs and commas to
alter the otherwise plain meaning of a contractual provision or to frustrate the overall plan or
scheme memorialized in the parties’ contract.’”) (citing Interim Healthcare, Inc. v. Spherion
Corp., 884 A.2d 513, 555–56 (Del. Super. 2005), aff’d, 886 A.2d 1278 (Del. 2005))); Facebook,
Inc. v. Duguid, 141 S. Ct. 1163, 1170 n.5 (2021) (“Linguistic canons are tools of statutory
interpretation whose usefulness depends on the particular statutory text and context at issue.”); see
also Barnhart v. Thomas, 540 U.S. 20, 26 (2003) (observing that the rule is “not absolute” and can
be “overcome by other indicia of meaning”).
182
Chancery Opinion, 273 A.3d at 825, 828; see also Stream TV, 279 A.3d at 341, 341 n.99
(collecting cases standing for the proposition that if a contractual provision is unambiguous, the
court need not interpret it and the language of the provision itself controls).
183
See GARNER, supra note 179, at 239 (“[A] relative pronoun is supposed to agree with its
antecedent in both number and person.”). But cf. GARNER, supra note 179, at 239 (recognizing
that the matching of “they” with a singular noun is now a common way to avoid sexist or gendered
language).
184
A determiner is “[a] type of adjective that limits how a noun element applies.” GARNER, supra
note 179, at 1204. Examples of determiners “are articles (a, an, and the), demonstrative adjectives
63
Those rules state that “[w]ith postpositive modifiers, the insertion of a determiner before
the second item tends to cut off the modifying phrase so that its backward reach is
limited.”185 Here, the second item is “Holders” and the determiner is “the,” which cuts off
the modifying phrase “their” from reaching back to modify “Stockholder.”
Finally, Daniel’s reading is inconsistent with the structure of the Assignment
Provision. As discussed above, the Assignment Provision is a prohibition on the rights of
the Holders. It provides for two exceptions. Both only apply to the Holders because only
the Holders are prohibited from assigning their rights. In a provision addressing a
prohibition on the Holders’ ability to assign their rights, the most natural reading is that
“permitted assigns” refers to those assigns permitted by the Holders under the exceptions
provided for in the previous sentence.
IV. CONCLUSION
For the foregoing reasons, we hold that the Irrevocable Proxy does not run with the
Majority Shares. Delaware law requires that the irrevocable proxy instrument clearly and
unambiguously state that such proxy will continue with the shares upon their sale or
transfer. The Irrevocable Proxy does not do so. Accordingly, we AFFIRM the judgment
of the Court of Chancery.
(this, that, these, and those), and indefinite adjectives (e.g., all, any, each, every, some, few).”
GARNER, supra note 179, at 1204.
185
SCALIA & GARNER, supra note 152, at 149 (acknowledging that the effect of a determiner in
these instances is “not entirely clear” and that a competent drafter will position it earlier in the
phrase).
64