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Ravenswood Investment Co., L.P. v. Winmill

Court of Chancery of Delaware

November 27, 2013

The Ravenswood Investment Company, L.P.

Date Submitted: August 2, 2013

R. Bruce McNew, Esquire Wilks, Lukoff & Bracegirdle, LLC

David A. Jenkins, Esquire Smith Katzenstein & Jenkins LLP

Dear Counsel:

In a procedurally awkward manner, Plaintiff The Ravenswood Investment Company, L.P. ("Ravenswood"), a shareholder of Defendant Winmill & Co. Incorporated ("Winmill"), [1] has moved for partial summary judgment on its claim that Winmill's issuance of options was improper because its incentive stock option plan was not adopted in compliance with the requirements of the Delaware General Corporation Law. Specifically, it contends that the shareholder consent approving the plan did not satisfy the requirement of 8 Del. C. § 228(c) that every consent "shall bear the date of signature of each stockholder or member who signs the consent . . . ."

The motion is procedurally awkward because this claim cannot be found within Ravenswood's Complaint, no application to amend that complaint has been filed, and Court of Chancery Rule 15(aaa) might, at least arguably, preclude assertion of the claim in light of the dismissal of at least a part of Ravenswood's challenge to the issuance of options under the plan.[2] That said, the substance of the narrow pending motion has been fully briefed and Defendants acknowledge that the issue might as well be addressed now.

By written consent, [3] Winmill's three directors and its one stockholder with voting power (Bassett Winmill) approved the 2005 Performance Equity Plan (the "2005 PEP"), pursuant to which the Defendants purported to authorize issuance of the options which Ravenswood now challenges. The same signature pages— executed as counterparts—were used for approvals by the shareholder and the directors. Bassett Winmill signed the Consent only once, as a director and as the "sole holder of outstanding shares of Class B voting common stock, " on the same page as Thomas B. Winmill, who signed as a director.[4] Only one date appears on the signature page, i.e., each signature is not separately dated. "Dated: As of May 23, 2005" was typed off to the left side of the signature pages.

Ravenswood moved for partial summary judgment based "upon Defendants' judicial admission that all of these actions [including Bassett Winmill's signature as the sole voting stockholder and the Defendants' (including Bassett Winmill's) signatures as directors] took place on May 23, 2005 . . . ."[5] Thus, there is no argument that the Consent was signed by different signatories on different dates. Also, there is no dispute that Winmill's only voting stockholder signed the Consent on May 23, 2005.

Ravenswood asserts that Bassett Winmill's purported approval, as Winmill's only stockholder, of the 2005 PEP was ineffective because "[p]reprinted dates on forms are not acceptable."[6] It also argues that a "date 'as of' is not the same thing as a date on a particular day" because "as of" is a phrase used to specify an effective date, not the date of actual signing.[7] In addition, Ravenswood observes that pre-typed dates cannot be tied to the execution of the Consent by any one individual.[8] If the approval of the Consent by Bassett Winmill was not effective for any reason, issuance of any incentive options under the 2005 PEP would not have been valid.[9] Ravenswood points to H-M Wexford LLC v. Encorp, Inc., which provides: "First, Section 228(c) reads: 'every written consent shall bear . . .' the word 'shall' is a mandatory term. It denotes that such action must be taken in order to comply with the statute and thus to be valid."[10] In Wexford, as a prominent treatise summarizes, "consents were held invalid because they were not individually dated by the signers."[11] In Wexford, the shareholders' consents, which accounted for 94% of the necessary shareholders, all bore the same date, but it was alleged that the consents had not been executed on the same day. The problem of a single date appearing on the consent, even though the consent was executed on a different date or dates, is not present here. Ravenswood agrees that the Consent was executed on the dates shown. There were not multiple shareholder signatories; there was only one shareholder whose approval was required.[12]

The Consent, in fact, bears the date—accurately—of the signature of the shareholder. Winmill did not have several stockholders signing a piece of paper with a single, preprinted date on separate dates. The Consent must bear the signature of each shareholder and there is no evidence that any shareholder signed on the date other than that set forth on the Consent. Indeed, the evidence is clearly to the contrary: the shareholder did execute the Consent on the date set forth.

That does not end the inquiry, however. First, there is the question of whether the use of "as of" invalidates the Consent. Ravenswood asks the Court to invalidate the Consent because the phrase "as of" "is frequently used to signify the effective legal date of a document . . . ."[13] The Court disagrees with Ravenswood that the persuasive authority it quotes must or even should be translated into a strict rule to disqualify the Consent in this case, where no factual dispute exists as to when the Consent was executed. Ravenswood's argument might have more merit if the factual circumstances underlying the Consent were also in dispute to make the present case more akin to Wexford.

The Court notes that certain persuasive authority may also be quoted which counters the persuasive authority cited by Plaintiff. A leading treatise provides a form for shareholder consent.[14] The last sentence of that form reads: "IN WITNESS WHEREOF, the undersigned stockholders have caused this Consent to be executed as of the date set forth below their respective names." Under that are blocks with a space for name and for date. Thus, the treatise writers recognize the desirability, if not the need, for each signing stockholder to have a date with his or her name. The "as of" language in the treatise does not serve any purpose different from that in the consent prepared for Winmill. This suggests the use of "as of" does not automatically disqualify a consent. More importantly, although there may be some uncertainty as to the meaning of "as of, " it can mean the date of execution. As noted above, the facts here demonstrate that the date of the Consent was indeed the date of execution.

There was only one shareholder signature on the page with Basset Winmill's signature and no shareholder signature on the counterpart. The other signatures were for directors and did not require a date. Bassett Winmill's signature was the first one on the page. It was essentially opposite, perhaps slightly lower, than the "as of" date. Of course, the same typed end date appears on the second counterpart executed by another director. Yet, there is no debate that the Consent does, in fact, bear the date of Bassett Winmill's signature.

Thus, there was compliance in fact with the terms of Section 228(c). Case law, however, mandates that the date requirement of the provision ...

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