## Facts

- A Delaware corporation’s charter allocated board-designation rights: the common stockholder (Alex Bäcker) could appoint two directors; Palisades (Series A) could appoint one; Altos (Series A‑1) could appoint one.
- A voting agreement also required (i) a jointly designated independent director and (ii) creation of an additional “CEO director” seat if Alex was terminated as CEO, to be filled by the replacement CEO.
- The board removed Alex as CEO after an investigation found workplace misconduct; it later hired Kevin Grauman as replacement CEO, who was expected to fill the CEO-director seat.
- Alex’s communications and conduct initially reflected acceptance of Grauman as a board participant, including incorporating him into board communications and not objecting to resolutions treating him as a director.
- Altos’s director resigned; due to erroneous legal advice, Altos did not promptly exercise its exclusive charter right to fill the vacancy by stockholder action, instead expecting board-level confirmation at the next meeting.
- Shortly before a scheduled November 15, 2019 board meeting, the independent director resigned, leaving only Alex, Ricardo Bäcker, and Palisades’ designee (Jeff Anderson) as directors of record.
- At the November 15 telephonic meeting, Alex presented a surprise agenda, asserted a 2–1 voting majority with Ricardo, demanded that Grauman and Altos’s intended designee (Paul D’Addario) disconnect, and then—over Anderson’s opposition—removed Grauman, reinstated himself as CEO, claimed the CEO-director seat, and appointed another director to consolidate control.
- Palisades sued for equitable relief seeking to invalidate the actions taken at the meeting.

## Issues

1. Whether board actions that are facially consistent with governance documents may be voided in equity when accomplished through bad-faith process and deception.
2. Whether directors breach fiduciary duties by using a surprise agenda and affirmative deception to alter board composition and seize control.

## Decision

- The Court of Chancery voided all actions taken at the November 15, 2019 board meeting as a matter of equity.
- The court found Alex and Ricardo breached fiduciary duties by orchestrating a deceptive control grab, including affirmative deception of a fellow director about meeting intentions and expected board composition.
- The court held that technical compliance with governing documents did not validate actions implemented through inequitable conduct.

## Legal Principles

- Corporate action is “twice-tested”: legal authorization is necessary but not sufficient; equity separately reviews the fairness of the conduct used to achieve the result.
- Inequitable conduct can render corporate acts invalid even if the acts were legally possible under the charter, bylaws, or agreements.
- Directors breach fiduciary duties when they employ affirmative deception, lack of fair notice, and bad-faith manipulation of board process to entrench control.
- The Court of Chancery may use equitable remedies, including voiding board actions, to address fiduciary misconduct in corporate governance.

## Conclusion

The court set aside an attempted control shift accomplished through a surprise agenda and affirmative deception, holding that equity will nullify board actions taken in bad faith even when the steps appear formally permissible under the company’s governance documents.


Palisades Growth Capital II, L.P. v. Bäcker, 2020 WL 1503218 (Del. Ch. 2020)