The firm secured a landmark trial victory on June 16, 2022 when Vice Chancellor Lori W. Will of the Delaware Court of Chancery issued a 65-page post-trial opinion granting a declaratory judgment, permanent injunction, and other equitable relief for our client Warren Lichtenstein. Lichtenstein is the Executive Chairman of investment company Steel Partners Holdings L.P. (“Steel”), and previously also served as Executive Chairman of propulsion systems manufacturer Aerojet Rocketdyne Holdings, Inc. (“AJRD”). On February 7, 2022, Lichtenstein and three other AJRD directors filed a complaint against the Company’s other four directors—including its CEO Eileen Drake—seeking to prevent the unauthorized use of corporate resources in an ongoing contest for control of the Company.
After AJRD’s deadlocked board was unable to agree on a Company slate of director nominees for the upcoming shareholder election, Steel nominated its own slate (including all four eventual plaintiffs) and Drake nominated her own (including all four eventual defendants). When Steel nominated its slate, Drake issued an official Company press release and SEC filings disparaging Lichtenstein, and engaged Company counsel and advisors to oppose Steel’s slate and promote her own. Quinn Emanuel sued to stop Drake from continuing to mobilize AJRD’s resources against Lichtenstein without authorization, requesting a declaratory judgment and equitable relief and, in the meantime, a temporary restraining order.
Quinn Emanuel won both. The court quickly granted the TRO, agreeing that a Delaware corporation’s management cannot act for the Company without authorization from a majority of the Board and ordering AJRD to stay neutral in the proxy contest as long as the Board remained deadlocked. Then, following a three-day trial in May, the Court reaffirmed that principle of corporate neutrality—holding that “The Company, which is necessarily guided by the Board, could not (and cannot) take sides pending the outcome of the election” because “[t]o hold that one stockholder-nominated slate comprising half of the incumbent directors can advantage itself with access to the company’s name, funds, and employees because it includes management would unfairly tip the scales in that slate’s favor.” The Court also agreed with our client that the defendants had violated that principle, issued a declaratory judgment for our client, permanently enjoined further violations by the defendants, and ordered them to issue corrective disclosures retracting the unauthorized press release and SEC filings.
Vice Chancellor Will’s opinion was both a resounding win for a Quinn Emanuel client and a significant ruling on a novel question of Delaware law, reaffirming the principle that a corporation can act only through its board in the unusual situation in which evenly divided board factions face off in a proxy contest.