Philadelphia partner Doug Raymond published his latest column, “Who are the Officers and What Can They Do” in Directors & Boards, written with the assistance of Philadelphia associate Laura Householder.
In the article, Doug discussed a recent decision out of the Delaware courts, Flaa v. Montano. Daniel Montano was the founder and CEO of CardioVascular BioTherapeutics. He held a significant portion of the stock of the company jointly with his (then) wife Vicki. While married, they had created a new corporation, Vizier Investment, which was the holding company for their Cardio stock. Vicki was a vice president and one of four directors of Vizier. Vicki and Daniel later divorced, but Vicki continued in her role as an owner, officer, and director of Vizier.
Cardio got into financial difficulties and ultimately de- faulted on loans that Daniel had personally guaranteed. Upon this default, the lender sought, among other things, to remove Daniel as CEO and remove Daniel and his relatives from Cardio’s board of directors. As Daniel’s family constituted half of Cardio’s board, the proposal failed. The lender then initiated a written stock- holder consent to replace the board.
Upon learning of the consent solicitation, Vicki directed Vizier’s registered agent to change the mailing address for Vizier from Daniel’s former home address. As a result, she and not Daniel received the consent solicitation. Vicki then voted the Cardio shares with the lender in favor of changing the board and divesting her ex-husband of his positions as CEO and director of Cardio. In the ensuing litigation before Vice Chancellor Glasscock, the effectiveness of the lender’s consent solicitation depended on the validity of Vicki’s authority to vote the Vizier shares.
The court assumed for the purposes of its analysis that Vicki still was a vice president. A corporation determines the powers and authority granted to its officers only through the action of its directors or in its constituent documents. However, the only authority granted to the Vizier vice presidents, as provided in its articles of association, was the ability to act, in order of seniority, in the absence of the president. And there was no way to establish which of the (possible) two vice presidents was the senior one.
Doug concluded, that Montano reminds directors that is important to annually update the corporation’s list of authorized officers and regularly review the powers and authorities delegated to the officers.
To view the entire article in Directors & Boards, click here.