In re: Allergan, Inc. Stockholder Litigation, C.A. No. 9609-CB (Del. Ch. November 7, 2014) (Bouchard, C.)

By David Bernstein and Meredith Laitner

On November 7, 2014, Chancellor Bouchard denied the plaintiffs’ requests for summary judgment in In re: Allergan, Inc. Stockholder Litigation.  This ruling comes amid an acrimonious proxy fight in which a company owned by Valeant and Pershing Square are seeking to remove six of the nine members of the Allergan Board and request that the Board engage in good faith discussions with Valeant with regard to a Valeant proposal to merge with Allergan that will come to a head at a special stockholder meeting scheduled for December 18, 2014.

The charter and bylaw provisions challenged by the plaintiffs permitted holders of 25% of Allergan’s stock to call a special meeting or act by stockholder consent, but not with regard to any matter that is identical or substantially similar to one presented at a stockholder meeting held during the previous year (a so-called “Similar Items” provision).  In a Supplemental Proxy Statement, Allergan had stated that this would permit stockholders to remove directors, but not to replace them by written consent at a meeting called by stockholders if an election had occurred within the past year.  The plaintiffs asked for a declaratory judgment that the Similar Items provisions would not prevent the stockholders from, at a special meeting, both removing the entire Board and electing a new Board so long as the new directors had not been up for election during the preceding year.

The Court held that the plaintiffs’ request for declaratory relief was not ripe for a decision, because no Allergan stockholders are currently attempting to remove and replace the entire board at a special meeting.  In response to the plaintiffs’ argument that the Similar Items provision would intimidate stockholders who might otherwise try to remove and replace directors, Chancellor Bouchard said that the current proxy fight being waged by Valeant and Pershing Square shows that the Similar Items provision is not a significant deterrent to stockholder franchise rights.

The Court also denied plaintiffs’ effort to have the Court find that a statement in a Supplemental Proxy Statement relating to the Certificate of Incorporation provision authorizing stockholders to call stockholders meetings was misleading when it said that the provision would not permit stockholders to replace removed directors.  The Court said that plaintiffs had failed to provide evidence that in permitting Allergan to make the statement in the Supplemental Proxy Statement, Allergan’s directors had breached either their duty of care or their duty of loyalty.

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