Chancery Court Applies Contract Terms to Clarify Difference Between Void and Voidable Stock Issuances
By Jessica Pearlman and Jonathan Miner
Southpaw Credit Opportunity Master Fund, L.P. v. Roma Restaurant Holdings, Inc., C.A. No. 2017-0059-TMR (Del. Ch. Feb. 1, 2018) came before the Delaware Court of Chancery as a dispute over control of the board of directors of Roma Restaurant Holdings, Inc. (“Roma” or the “Company”). Plaintiffs were a stockholder group that had taken a majority position in Roma’s common stock. After learning of Plaintiffs’ majority position, the Roma board adopted a new equity compensation plan and issued sufficient shares of restricted stock to Roma employees to dilute Plaintiffs below a majority ownership position. Plaintiffs considered the dilutive restricted stock issuances as invalid for a number of reasons, including the Company’s failure to obtain contractually mandated stockholder agreement joinder documents from each recipient before issuance, and presented Roma with a written consent that removed two of Roma’s current directors (the “Defendant Directors”) and replaced them with Plaintiffs’ nominees. Roma contested the validity of Plaintiffs’ written consent and the case came before the Court under Section 225 of the Delaware General Corporation Law (DGCL) to determine the proper composition of Roma’s board of directors. Vice Chancellor Montgomery-Reeves found that the disputed restricted stock issuances were void and could not be counted toward a stockholder vote.