## Facts

- VAALCO Energy, Inc. was a Delaware corporation whose certificate of incorporation and bylaws stated that directors could be removed only “for cause.”
- VAALCO historically had a classified board, a structure that can limit stockholders’ ability to remove directors without cause under 8 Del. C. § 141(k).
- In 2009, VAALCO amended its governance so the board was declassified and all directors stood for election at the same time (annual elections).
- Directors were elected by straight voting, not cumulative voting.
- A shareholder group (Group 42) announced it intended to remove VAALCO’s directors at a special stockholders’ meeting and asserted that § 141(k) permitted removal without cause because VAALCO no longer had a classified board and did not use cumulative voting.
- VAALCO responded that its charter and bylaws still required “cause” for removal and took the position that stockholders could not remove directors without cause.
- Stockholders filed suit seeking declaratory relief that the “for cause only” removal provisions were invalid once VAALCO’s board was declassified.

## Issues

1. Does 8 Del. C. § 141(k) give stockholders of a Delaware corporation with a declassified board and no cumulative voting the right to remove directors with or without cause, making contrary “for cause” charter/bylaw provisions invalid?

## Decision

- The Court of Chancery granted plaintiffs’ motion for partial summary judgment on the claim for declaratory relief and denied defendants’ cross-motion.
- The court declared that VAALCO’s charter and bylaw provisions limiting director removal to “for cause” conflicted with § 141(k) and were invalid and unenforceable after the board was declassified and because the corporation did not have cumulative voting.
- The ruling was issued from the bench on December 21, 2015 (later reflected in a partial summary-judgment order entered December 23, 2015).
- With the declaratory ruling resolving the removal-rights dispute, the remaining fiduciary-duty claim was later dismissed as moot by stipulation after the appeal period expired.

## Legal Principles

- Under 8 Del. C. § 141(k), stockholders holding a majority of shares entitled to vote generally may remove any director or the entire board “with or without cause.”
- Section 141(k) sets out two exceptions relevant here: (1) when directors are elected by cumulative voting, and (2) when the corporation has a classified board (in which case removal without cause is restricted).
- When a corporation does not fall within either exception, a charter or bylaw provision that requires “cause” for director removal conflicts with the DGCL and is void.
- Delaware’s governance hierarchy gives the DGCL priority over inconsistent charter or bylaw language; a corporation cannot contract around a statutory right in a way the statute does not permit.
- Declaratory relief is an appropriate remedy to resolve a pure statutory-conflict question regarding the validity of charter/bylaw provisions.

## Conclusion

In In re VAALCO Energy Shareholder Litigation, the Delaware Court of Chancery held that once VAALCO declassified its board and because it did not use cumulative voting, § 141(k) granted stockholders an unconditional statutory right to remove directors with or without cause, and the company’s “for cause only” removal provisions in its charter and bylaws therefore conflicted with the DGCL and were invalid and unenforceable.


In re VAALCO Energy Shareholder Litigation, CA No. 11775-VCL (2015)