By Wilson Chu and Mark Hammes
In this action for breach of contract, Plaintiff institutional investors held cumulative preferred stock of Spanish Broadcasting System (“SBS”), a Delaware corporation, with dividends payable quarterly if so declared by the board of directors. If the dividends were unpaid for four consecutive quarters, a voting rights trigger in the shares’ Certificate of Designation (“Certificate”) allowed the holders of the preferred stock to call a special meeting and elect two additional directors to SBS’s board. In addition, the Certificate prohibited SBS from incurring additional debt after such a triggering event.
During 2009, SBS began to fail to make dividend payments. Plaintiffs alleged a triggering event occurred no later than July 2010. Plaintiffs did not at that time assert their rights under the Certificate, nor did they when SBS incurred additional debt in publicly announced transactions during 2011 and 2012. Plaintiffs brought suit for breach of contract and breach of the covenant of good faith and fair dealing. SBS argued that no triggering event occurred until after the debt transactions, and raised defenses including laches and acquiescence.
SBS’s defense of laches failed. Vice Chancellor Glasscock explained that the doctrine of laches applies only to equitable claims, and the contract damages sought by Plaintiffs in this case were legal in nature.
V.C. Glasscock held SBS’s doctrine of acquiescence defense effectively worked an estoppel. Where Plaintiffs had imputed knowledge of the occurrence of the triggering event and the fact that the board nonetheless intended to incur additional debt, made no objection to that action, and instead stood by and allowed the breach to occur, they acquiesced to the transaction. SBS’s knowledge of the Plaintiff’s silence, and entry into the debt transaction in reliance on this silence, worked as an estoppel and Plaintiffs were precluded from later challenging the transaction. Thus, V.C. Glasscock did not have to decide the question of whether the triggering event occurred prior to the debt transaction.
V.C. Glasscock denied Plaintiffs’ motions for summary judgment, and granted SBS’s motion for summary judgment.