Document: Kallick v. Sandridge Energy, Inc., C.A. No. 8182-CS (Del. Ch. Mar. 8, 2013)
The Delaware Court of Chancery enjoined an incumbent board from impeding a proxy contest until the board approved the dissent slate for purposes of a change in control provision in the corporation’s debt instruments. If the dissident slate were elected by the corporation’s stockholders without the incumbent board’s prior approval, the corporation’s creditors would have the right to require the corporation to repurchase its own debt. The incumbent board’s approval of the dissident slate for purposes of the change in control provision would not have (but for the court’s action) limited the incumbent board’s ability to run its own campaign. In reaching the decision to issue an injunction, the Court first found that the incumbent directors had likely breached their fiduciary duties in declining to approve the dissident slate for purposes of the change in control provision in the debt instruments because the directors could not identify any specific and substantial risk to the corporation or its creditors posed by the election of the rival slate. Reviewing the board’s actions under Unocal, the Court found that the incumbent directors’ belief that they were better qualified or had better plans for the corporation than the rival slate did not justify the potential coercion of the stockholder vote in the incumbents’ favor as a result of fear-mongering over the triggering of the put right. Because damages for the board’s breach of fiduciary duty would be difficult to calculate and the injunction request was narrowly tailored, the Court found that all of the conditions for a preliminary injunction were satisfied.