January 2023 in Brief: Corporations, LLCs & Partnerships

Garfield v. Boxed, Inc., C.A. No. 2022-0132-MTZ (Del. Ch. Dec. 27, 2022) (Zurn, V.C.)

Court of Chancery Awards Plaintiff Fees and Expenses Totaling $850,000 After Plaintiff Advised the Board of Directors of SPAC Boxed, Inc. that Two Stockholder Votes Required in Connection with a de-SPAC Transaction Violated Section 242(b) of the Delaware General Corporation Law

By Pamela L. Millard, Potter Anderson & Corroon LLP

In this memorandum opinion, the Court of Chancery held that plaintiff, who advised the board of directors of Boxed, Inc. (“Boxed” or the “Company”) that two stockholder votes secured in connection with a merger transaction failed to comply with Section 242(b) of the Delaware General Corporation Law (the “DGCL”), had conferred a corporate benefit upon the Company and was therefore awarded fees and expenses totaling $850,000.

The Company, a publicly traded Special Purpose Acquisition Vehicle (a “SPAC”), had Class A common stockholders and Class B common stockholders, with plaintiff holding shares of Class A common. Boxed planned to acquire another corporation in a merger, with the Company surviving post-merger. In addition to approving the merger transaction, the stockholders of Boxed were asked to approve certain amendments to the Company’s Certificate of Incorporation (the “Charter”), including (1) increasing the authorized number of Class A common stock (the “Share Increase Amendment”), and (2) altering the vote required for the board to change the number of authorized shares of the Company in the future (the “Voting Amendment” and, together with the Share Increase Amendment, the “Charter Amendments”).

Prior to the stockholder vote, plaintiff wrote a letter to the Company’s board of directors asserting that the proposed vote violated the rights of the holders of Class A common under Section 242(b) of the DGCL by failing to provide the Class A common holders the right to vote on the Charter Amendments as a separate class, instead of with the holders of Class B common stock. As a result, the Company amended the merger agreement and supplemented its proxy statement to implement the changes demanded by plaintiff, and the merger transaction was approved and ultimately closed, causing the Amendments to become effective.

Plaintiff then filed suit in the Court of Chancery to recover attorneys’ fees and expenses for the corporate benefit he had conferred on Boxed and its stockholders by causing the Company to secure valid stockholder approval for the Charter Amendments. On the parties’ cross-motions for summary judgment, the Company argued that the separate class vote demanded by plaintiff was unnecessary because the Company’s corporate charter provided for one class of common stock with two series, “Class A” and “Class B,” that voted together on the Charter Amendments affecting the common class.

The Court disagreed, holding that the Charter provided for two classes, rather than series, of common stock, and the holders of Class A common therefore had a statutory right to vote as a separate class on the Charter Amendments. Finding that plaintiff’s claim was both “meritorious when filed” and conferred a “substantial benefit” on the Company and its stockholders since a flawed vote on the Charter Amendments would have called into question the new stock issuances as well as the merger, and following an analysis of plaintiff’s requested fees and expenses, the Court awarded plaintiff a total of $850,000.