Ackerman v. Stemerman

Decision Date19 May 1964
Citation201 A.2d 173,41 Del.Ch. 585
PartiesEmory G. ACKERMAN et al., Defendants Below, Appellants, v. Francis STEMERMAN, Plaintiff Below, Appellee.
CourtUnited States State Supreme Court of Delaware

Edmund N. Carpenter, II, of Richards, Layton & Finger, Wilmington, and Ralph M. Carson, Henry L. King and Thomas P. Griesa, of Davis, Polk, Wardwell, Sunderland & Kiendl, New York City, for individual defendants.

H. Albert Young, of Morford, Young & Conaway, Wilmington, for Texas Instruments Inc.

Irving Morris and Joseph A. Rosenthal, of Cohen & Morris, Wilmington, for Francis Stemerman.

TERRY, C. J., and WOLCOTT and CAREY, JJ., sitting.

WOLCOTT, Justice.

This is an appeal from the denial of the defendants' motion for summary judgment in a declaratory judgment action brought as a stockholder's derivative suit.

The complaint contained three causes of action, the first and third of which attacked the validity of certain stock options issued to officers and employees of the corporate defendant. In an earlier action filed by the same plaintiff the validity of various options granted under the Option Plan in question here was filed and was dismissed after a trial on the merits by the Vice Chancellor. Del.Ch., 184 A.2d 28.

Defendants' motion for summary judgment as to the first and third causes of action in the case at bar was granted without objection by the plaintiff on the basis of the result in the first action brought.

The second cause of action seeks a declaratory judgment invalidating part of Paragraph 21 of the Stock Option Plan involved. Paragraph 21 of the Plan is as follows:

'In addition to such other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Corporation against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon institution of any such action, suit or proceeding a Committee member shall in writing give the Corporation an opportunity, at its own expense, to handle and defend the same before such Committee member undertakes to handle it on his own behalf.'

The Stock Option Plan of the corporate defendant was first adopted in 1957 with the approval of 98.8% of its stockholders and authorized options not to exceed a total of 150,000 shares. Plaintiff became a stockholder of the corporate defendant in 1957 shortly after the approval of the Stock Option Plan and voted his stock in 1960 in favor of an amendment to the Plan increasing the number of shares subject to the Plan.

The Plan provides for the establishment of a Stock Option Committee of the Board of Directors with the responsibility of recommending those employees who should receive options and the number of shares to be optioned. No member of this committee is eligible to receive options.

Since the Stock Option Plan went into operation no member of the Stock Option Committee has ever received a payment in the form of indemnity under Paragraph 21 of the Option Plan, nor has any member of the Stock Option Committee ever made a claim for an indemnity payment under Paragraph 21.

It seems to be that there is no imminent or contemplated application of Paragraph 21 and, as a matter of fact, only two suits have ever been instituted involving in any way the members of the Stock Option Committee the first of which was the first action started by this plaintiff and dismissed, and the second is the instant case.

The theory of the defendants' motion for summary judgment is that since the complaint sought to invalidate only part of Paragraph 21 and since Paragraph 21 had never been called into operation and there was no future prospect of its ever being utilized, there was no jurisdiction under the Delaware Declaratory Judgment Act, 10 Del.C. § 6501, which limits jurisdiction to 'cases of actual controversy.'

For the first time in his brief filed before the Vice Chancellor in opposition to the defendants' motion for summary judgment, plaintiff, in answer to the contention that there was no actual controversy, argued that the inclusion of Paragraph 21 in the Stock Option Plan made the entire plan invalid. The Vice Chancellor thereafter held that since defendants' motion for summary judgment upon the second cause of action was based upon the jurisdictional lack of an actual controversy only, and since the plaintiff had now attacked the entire validity of the Plan, an actual controversy existed irrespective of whether or not plaintiff would ultimately be able to support his claim that the invalidity of Paragraph 21 rendered the entire Plan invalid. From this ruling defendants appeal.

The existence of an actual controversy between the parties is a jurisdictional fact in actions for declaratory judgments under 10 Del.C. § 6501. In Stabler v. Ramsay, 32 Del.Ch. 547, 88 A.2d 546, this court had opportunity to...

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    ...judgment to be entered"). Id. at 105. [158] Sprint Nextel Corp, 2008 WL 2737409, at *12 (internal quotations omitted); Ackerman v. Stemerman, 201 A.2d 173, 175 (Del. 1964) ("[T]he Declaratory Judgment Act is not to be used as means of eliciting advisory opinions from the courts. There must ......
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