Del. Ct. Grants Motion on Defective Corp. Act

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By Michael Greene

Sept. 1 — The Delaware Chancery Court Aug. 31 determined that it was proper to grant judgment on a petition seeking to validate putative stocks of CertiSign Holding Inc. while other questions related to the company's capital structure remained unresolved.

CertiSign and one of its original directors had filed the petition pursuant to §205 of the Delaware General Corporation Law, which authorizes the court to validate corporate acts that would be void or voidable.

In granting CertiSign's motion for partial judgment on the pleadings, Vice Chancellor John W. Noble concluded that the court could resolve the issue before addressing a counter-petition related to other purported components of the company's capital structure.

However, the court declined the petitioners' request to enter a final order pursuant to Court of Chancery Rule 54(b). “Petitioners have failed to establish a sufficient danger of hardship or injustice to justify entry of a final order on the Petition,” Noble wrote.

Tailor-Made for Relief

CertiSign filed its petition seeking an order validating stock issuances and approving a corresponding stock ledger. Noble observed that the petition “appears tailor-made for Section 205 relief” because the company operated for years under the assumption that it was validly capitalized, there was agreement that the predicament arose from a ministerial error and all record stockholders consented to the relief requested in the petition.

Despite agreeing that the stock issuances should ultimately be ratified, a former officer and director—who filed a counter-petition seeking judicial validation of other alleged corporate acts—opposed the court granting CertiSign's requested relief before resolving the company's full capital structure.

In rejecting an argument that it would be inequitable to grant the petitioners' motion for partial summary judgment on the pleadings, Noble reasoned that “[Counter-petitioner] has not identified any persuasive reason why the Petition should not be granted now; indeed, he accepts that Petitioners will ultimately obtain the relief they seek. Therefore, judgment on the Petition’s sole count is warranted in Petitioners’ favor.”

No Final Order

The court, however, declined to enter a Rule 54(b) partial final judgment, finding that this was not a case where a party might benefit from an immediate appeal.

“Rather, Petitioners want the finality that could be achieved by the expiration of the period for an appeal,” he wrote. “There is no serious doubt or disagreement that the relief sought by the Petition will ultimately be granted; only the circumstances and conditions surrounding the final entry of a judgment are unsettled. Petitioners have not adequately explained the injustice they would suffer by the Court’s entry of a partial judgment in their favor but without Rule 54(b) finality.”

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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