## Facts

- Examen, Inc. was incorporated in Delaware and maintained its headquarters and major operations in California.
- Examen negotiated a merger with a Delaware subsidiary of Reed Elsevier, Inc., which required stockholder approval.
- Examen planned to conduct the stockholder vote under Delaware law, with common and preferred stock voting together unless a separate class vote was required by Examen’s charter or other governing instruments.
- VantagePoint Venture Partners 1996, a Delaware limited partnership with offices including in California, held about 8% of Examen’s preferred stock.
- VantagePoint contended that California law should control because Examen qualified as a “quasi-California corporation” under California Corporations Code (CCC) § 2115.
- VantagePoint argued that, if CCC § 2115 applied, CCC § 1201(a) would require a separate class vote for the preferred stock on the merger, giving VantagePoint effective veto power.
- Examen filed an action in the Delaware Court of Chancery seeking a declaratory judgment that Delaware law governed the merger vote and that VantagePoint was not entitled to a separate class vote.
- VantagePoint filed a parallel action in California Superior Court seeking to apply California law and seeking discovery aimed at developing facts to support applying California law.
- The California court stayed its case pending the Delaware court’s decision.
- In Delaware, Examen moved for judgment on the pleadings, arguing the choice-of-law issue could be resolved as a matter of law without discovery; VantagePoint opposed and sought discovery, also arguing Delaware should either apply both states’ laws or first determine whether CCC § 2115 was unconstitutional before refusing to apply it.

## Issues

1. Whether Delaware law, under the internal affairs doctrine, governs stockholder voting rights for a merger involving a Delaware corporation, rather than California law through CCC § 2115 and CCC § 1201(a).
2. Whether the Court of Chancery had to address the constitutionality of CCC § 2115 (or allow discovery on California contacts) before concluding that California law could not govern Examen’s merger voting rights.

## Decision

- The Court of Chancery granted Examen’s motion for judgment on the pleadings.
- The court held that stockholder voting rights in a merger are matters of internal corporate affairs, and for a Delaware corporation those matters are governed by Delaware law.
- The court rejected VantagePoint’s attempt to apply California’s CCC § 2115 and CCC § 1201(a) to require a separate preferred class vote.
- The court declined to treat discovery as necessary because the controlling question was legal: which state’s law governs the internal voting rights of a Delaware corporation.
- The court also rejected the argument that it had to rule on the constitutionality of CCC § 2115 as a precondition to applying Delaware law.
- Judgment was entered for Examen, declaring that Delaware law governed the merger vote and that VantagePoint was not entitled to a separate class vote under California law.

## Legal Principles

- The internal affairs doctrine provides that the law of the state of incorporation governs a corporation’s internal affairs, including relations among the corporation, its directors, officers, and stockholders.
- Stockholder voting rights on a merger—such as whether a class vote is required—are internal affairs and are governed by the incorporation state’s corporate statute and the corporation’s governing documents.
- A state’s “quasi-foreign corporation” statute cannot displace Delaware corporate law as to a Delaware corporation’s internal affairs when it would impose different governance rules on the same corporation and stockholders.
- A Delaware court may resolve the choice-of-law issue by applying the internal affairs doctrine without first issuing a separate determination that the competing foreign statute is unconstitutional.
- Judgment on the pleadings is appropriate when the pleadings show that the dispute turns on a pure question of law and additional factual development would not change the governing choice-of-law rule.

## Conclusion

Examen, a Delaware corporation, was entitled to have its merger voting rights determined under Delaware law because those rights concern internal affairs. The Court of Chancery therefore refused to apply California’s CCC § 2115 and CCC § 1201(a) to require a separate preferred-stock class vote, granted judgment on the pleadings for Examen, and issued declaratory relief confirming that Delaware law controlled the merger vote.


Examen, Inc. v. VantagePoint Venture Partners 1996, 873 A.2d 318 (2005)