Stroud v. Milliken Enterprises, Inc.

• Decision Date: 13 September 1988
• Citation: 552 A.2d 476
• Parties: W.B. Dixon STROUD, Jr., Morris W. Stroud, Agnes S. Peelle, and Anne S. Bradford, Plaintiffs Below, Appellants, v. MILLIKEN ENTERPRISES, INC., a Delaware corporation, Dr. George C. Dacey, Dr. T.J. Malone, Roger Milliken, H.W. Jockers, Dr. H. Keith Brodie, Minot K. Milliken, F.G. Rodgers, J. Peter Grace, Rene C. McPherson, and Gerrish Milliken, Defendants Below, Appellees. . Submitted at Oral Argument:
• Court: United States State Supreme Court of Delaware

Page 476

552 A.2d 476

W.B. Dixon STROUD, Jr., Morris W. Stroud, Agnes S. Peelle, and Anne S. Bradford, Plaintiffs Below, Appellants, v. MILLIKEN ENTERPRISES, INC., a Delaware corporation, Dr.

George C. Dacey, Dr. T.J. Malone, Roger Milliken, H.W.

Jockers, Dr. H. Keith Brodie, Minot K. Milliken, F.G.

Rodgers, J. Peter Grace, Rene C. McPherson, and Gerrish

Milliken, Defendants Below, Appellees.

Supreme Court of Delaware.

Submitted at Oral Argument: Sept. 13, 1988.

Resubmitted on Supplemental Briefing: Oct. 19, 1988.

Decided: Jan. 12, 1989.

William Prickett (argued), Michael Hanrahan, and Philip B. Obbard, of Prickett, Jones, Elliott, Kristol & Schnee, Wilmington, for appellants.

Andrew B. Kirkpatrick, Jr. (argued), Andrew M. Johnson, and Mary B. Graham, of Morris, Nichols, Arsht & Tunnell, Wilmington, for appellee Milliken Enterprises, Inc.

David A. Jenkins, and Clark W. Furlow, of Lassen Smith Katzenstein & Furlow, Wilmington, for Individual appellees.

Before HORSEY, MOORE and WALSH, JJ.

HORSEY, Justice:

Following briefing and oral argument on September 13, 1988 on the merits of this appeal from a decision and order of the Court of Chancery, this Court issued a notice to show cause, by Order dated September 22, 1988. The Order directed the shareholder plaintiffs of Milliken Enterprises, Inc. ("Milliken"), a Delaware corporation, to show cause why the appeal should not be dismissed on alternate grounds: that the matter at issue does not involve an actual case or controversy; or, that the parties improperly seek an advisory opinion; or, that the appeal is taken from an interlocutory order without compliance with Supreme Court Rule 42(c) and (d). These issues were raised sua sponte by the Court at oral argument and were the subject of an exchange of supplemental memoranda by the parties. For the reasons which follow, we find the Court of Chancery to have rendered an advisory opinion and, accordingly, we dismiss the appeal.

I

Milliken, asserted to be one of the world's largest textile companies with assets of approximately $2 billion, is a privately-held corporation having approximately two hundred shareholders, all of whom are descendants of the company's founder, Seth Milliken. Plaintiffs are Milliken descendants who are not involved in the management of the company and own approximately 15% of Milliken's stock. The defendant Board of Directors of Milliken (the "board") consists of nine members. Five members of the board do not hold stock in Milliken and range from the president of Duke University to officers and directors of other major corporations. The four remaining directors are officers of the corporation, three of whom are family members--Roger Milliken (chairman of the board), Minot Milliken (vice-president and assistant secretary), Gerrish Milliken (vice-president) and Dr. Thomas J. Malone (president of Milliken). The three family members own or control over 50% of Milliken's common and preferred stock.

On April 15, 1987, plaintiffs filed suit to enjoin the holding of Milliken's annual stockholders' meeting on April 28, 1987 in Wilmington, Delaware. Their complaint (as well as later amendments) raises matters of corporate governance, asserted by way of both individual and derivative claims.

The original complaint focused on the Notice of the annual stockholders' meeting and proxy materials, which plaintiffs had received in early April from Milliken's management. The original complaint charged that Milliken's directors had breached their fiduciary duty to the stockholders by issuing a Notice which was incomplete, misleading, and lacking in complete candor. The complaint attacked proposed charter and bylaw amendments adopted by the board as being invalid as a matter of law and designed to entrench present management. The complaint also alleged that the proxy materials attached to the Notice were misleading. Plaintiffs asked the Court to issue a temporary restraining order forbidding the holding of the meeting and to declare that the bylaw and charter amendments were illegal.

On April 23, 1987, the Court of Chancery issued an order temporarily restraining Milliken and its board of directors from transacting at the scheduled annual meeting any business, including voting for the proposed charter amendments. The restraining order was not opposed.

Several weeks later, defendants' attorney, by letter dated June 10, 1987, informed the Court and plaintiffs that Milliken's directors had, at a meeting on June 4, 1987: (a) withdrawn all the contested charter and bylaw amendments and the original notice and proxy statements; and (b) adopted for shareholder ratification a revised bylaw, six charter amendments and three new charter provisions (hereafter, the "substitute amendments"). Defense counsel provided the court and opposing counsel with copies of the substitute amendments and with a "draft" of a proposed notice to stockholders of the reconvened annual meeting (hereafter, "the proposed revised notice").

In contrast to management's original notice, the proposed revised notice, beyond including the full text of the substitute amendments, did not include any letter of explanation by management of the substitute amendments and the board's reasons for their adoption and recommendation for shareholder approval. The proposed revised notice also did not include any proxy materials. Instead, the chairman's draft notice suggested that if stockholders had any questions concerning the substitute amendments, they should attend the meeting and management or counsel would endeavor to answer their questions.

Counsel's letter concluded by stating that if the court had "no problem" with both the notice and the substitute amendments and if plaintiffs expressed no objection to them, defendants would complete the notice for issuance by including "other appropriate stockholder matters" and fixing a date and time for the meeting. Counsel opined that Milliken's board's action taken June 4, 1987 had mooted the pending suit. However, defendants did not seek to formally dissolve the outstanding temporary restraining order.

Plaintiffs responded to what the trial court later characterized as defendants' "new proposal" by obtaining leave to file an amended complaint, entitled "Supplement to the Complaint." See Chanc.Ct.R. 15(d). Treating the proposed revised notice as an actual "finalized" notice, plaintiffs charged the defendant directors with failing to provide Milliken's stockholders with "all information material" to the business of the meeting and with proposing to issue a notice that was false and misleading and in breach of the directors' duty of complete candor. The Supplement also attacked the substitute amendments on their merits as invalid as a matter of law and as designed to entrench incumbent management. Plaintiffs again sought injunctive relief and a ruling declaring the proposed charter and bylaw amendments to be contrary to Delaware law.

Defendants then renewed a previously filed motion to dismiss all of plaintiffs' original and supplemental claims, individual and derivative; and the trial court, by unreported decision and order dated March 18, 1988, granted in part but denied in part the defendants' several motions: First, the court dismissed, as mooted by defendants' June 4 action, all counts of plaintiffs' original complaint ["the individual claims"] attacking defendants' original notice and accompanying proxy materials. Second, the court dismissed all of plaintiffs' derivative claims (stated in both the original complaint and the Supplement)--for failure of plaintiffs to establish the futility of presuit demand on the board. Third, the court found "most," but not all, of plaintiffs' individual claims raised by their Supplement to be either mooted or without merit. The court thereby ruled that, with one exception, defendants' proposed revised notice complied with 8 Del.C. §§ 222 and 242. The court stated:

The standards for disclosure in a notice of an annual meeting are less than those required in a proxy solicitation. 8 Del.C. §§ 222 and 242 do not require complete disclosures in the notice of an annual meeting, unless the omissions are likely to mislead the stockholders.

However, the court found defendants' proposed revised notice "not sufficient because it fails to declare the advisability of the proposed amendments, as required by 8 Del.C. § 242." On this ground, the court ruled Defendants' motion to dismiss plaintiffs' individual claim that the proposed notice of the reconvened stockholders' meeting is inaccurate and incomplete is however denied. IT IS SO ORDERED.

Plaintiffs' appeal is taken from both the trial court's March 18, 1988 decision and order and from a subsequent order captioned "Final Order of Judgment." The latter was entered after plaintiffs moved for "Clarification or Entry of Final Judgment" and after defendants stated that they would make an appropriate amendment of the board resolution and notice to comply with the court's ruling.

II

Neither the court below nor the parties addressed the questions now confronted: whether the issues raised by plaintiffs' "Supplement to the Complaint," in particular, the standard of disclosure controlling management's proposed revised notice to stockholders, presented the court below, and this court on appeal, with an actual case or controversy or constitutes a request for an advisory opinion.

Plaintiffs and defendants take essentially the same position. They contend that the decision appealed constitutes an actual case or controversy by virtue of the existence of an ongoing bona fide dispute between the parties requiring judicial resolution. Plaintiffs state that their original complaint clearly involved an actual case or controversy and that defendants' corrective action of June 4 resulted in a continuation of the controversy only on a different set of facts. Had plaintiffs not responded by their Supplement, they state that defendants would...