## Facts

- Cryo-Cell International, Inc., a small public Delaware corporation, faced a contested board election at its 2007 annual meeting amid poor performance and stockholder dissatisfaction.
- David Portnoy, a dissident stockholder, ran an opposition slate against the incumbent management slate led by CEO Mercedes Walton and incumbent directors.
- To improve the management slate’s prospects, Walton negotiated support from large stockholder Andrew Filipowski, including helping identify stockholders willing to sell shares to him.
- Walton promised that, if the management slate prevailed, the board would expand from six to seven seats and appoint an additional seat for a Filipowski designee, effectively giving Filipowski two representatives.
- Stockholders were not told of this plan, and thus voted without knowing that electing the management slate would result in a larger board and additional Filipowski representation.
- A key voting bloc was Saneron CCEL Therapeutics, Inc., in which Cryo-Cell held a significant stake and to which Cryo-Cell provided important laboratory space and cooperation.
- Walton secured Saneron’s support through a mix of pressure (threats to end cooperation on projects) and inducements (granting removal of a restrictive legend on shares), concessions tied to obtaining votes.
- At the annual meeting, management delayed proceedings, made lengthy unscheduled presentations, and kept the polls open beyond the scheduled closing time to solicit additional votes while management feared defeat.
- The management slate ultimately won by a narrow margin, and Portnoy sued for equitable relief to invalidate the election and obtain a new vote.

## Issues

1. Whether management’s undisclosed arrangements, coercive vote-gathering tactics, and meeting-process manipulation constituted inequitable conduct that tainted the director election.
2. Whether these actions breached fiduciary duties, including disclosure obligations and the duty not to use corporate power primarily for entrenchment, warranting judicial intervention and equitable remedies.

## Decision

- The Court of Chancery held that the election was tainted by inequitable conduct by Walton and the incumbent slate.
- The court found fiduciary breaches, including material nondisclosure concerning the planned board expansion and second Filipowski representative.
- The court determined that leveraging the corporation’s relationship with Saneron through threats and inducements to secure votes was an improper use of corporate power for electoral advantage.
- The court concluded that the meeting was managed in a manner designed to affect the outcome, including delaying closure of polls to obtain additional votes.
- As a remedy, the court set aside the election results and ordered a new, special stockholder meeting and election under court-imposed safeguards.
- The court required the incumbents/management slate to bear the costs of the special meeting because their conduct necessitated a new election.

## Legal Principles

- Delaware equity polices the integrity of the stockholder franchise; conduct that is technically permissible under corporate formalities may still be enjoined or remedied if inequitable.
- In contested elections, directors and management must disclose material information necessary for stockholders to cast an informed vote, including side arrangements likely to affect board composition and control.
- Directors may advocate for reelection but may not use corporate power, resources, or procedural control of the electoral process primarily to entrench themselves or tilt the voting process.
- Coercive or vote-buying conduct using corporate relationships (e.g., threats to withdraw cooperation or selective concessions to obtain votes) can constitute an improper purpose and support equitable relief.
- When electoral misconduct undermines confidence in the result, the appropriate remedy can be to void the election and order a new vote designed to restore a fair stockholder choice.

## Conclusion

The Court of Chancery invalidated Cryo-Cell’s contested director election because management’s material nondisclosure, coercive vote tactics, and manipulation of meeting procedures improperly interfered with the stockholder vote; the court ordered a new, court-supervised election and shifted the costs to the incumbents responsible for the misconduct.


Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43 (Del. Ch. 2008)