Professor Bainbridge...on law, politics, religion, culture & food

The blog as scholarship: Omnicare and DGCL §§ 146 and 251(c)

I received an email today at my blog address from a fellow law teacher who is getting ready to teach the Delaware supreme court's decision in Omnicare (see Omnicare v. NCS Healthcare: The precommitment issues). He asks:

I'm teaching Omnicare tomorrow. Any idea what promoted the DE legislature to delete the § 251(c) language and replace it with the same language in § 146 post-Omnicare?

I discussed Omnicare's impact on § 251 in my post Omnicare v. NCS Healthcare: The Section 251 issue. In that post, however, I omitted the amendment to which my reader refers.

Was that amendment intended to reverse Omnicare insofar as that decision dealt with § 251? I don't think so. The legislative summary of the relevant statute explains that:

The deletion of the language from subsection (c) of Section 251 and the addition of new Section 146 clarify that the rule previously codified at Section 251(c) applies to any matter submitted to stockholders. Under this rule, directors may authorize the corporation to agree with another person to submit a matter to stockholders, but reserve the ability to change their recommendation.

Because § 251 related only to mergers, people thought you could not include a so-called "force the vote" provision in, say, an asset sale agreement. It seems unlikely that the Legislature was responding to Omnicare. Instead, they wanted to make clear that any matter to be put to a shareholder vote pursuant to contract could be subject to a "force the vote" clause. The Delaware supreme court's holding in Omnicare that "Such provisions ... may not, however, ‘validly define or limit the directors' fiduciary duties under Delaware law or prevent the [NCS] directors from carrying out their fiduciary duties under Delaware law’” (818 A.2d at 938) presumably is still good law and will be applied under new § 146.

Many more posts like this one and I'll be able to start counting the blog on my annual report of to the dean of new scholarship.