Corporate Governance

City of Westland v. Axcelis Technologies: Majority Voting and Delaware Law (Defendant's Response)

By J. Robert Brown

We are discussing CITY OF WESTLAND POLICE & FIRE RETIREMENT SYSTEM v. AXCELIS TECHNOLOGIES, INC., a case involving the invocation of inspection rights to investigate the reasons why the board of directors of Axcelis did not accept the resignation of three directors who failed to receive majority support from shareholders voting in the election.

Axcelis did not provide the requested information.  With respect to the resignation of directors, the Company characterized plaintiff's allegations as conclusory.  According to the Defendant's Opening Pre-Trial Brief:

• With regard to both the rejections of [Sumitomo's] proposals and the refusal to accept certain director resignations, the Complaint is peppered with conclusory references to disclosure shortcomings and entrenchment motives. Each of these allegations are so unreasonably speculative that they fail on their face. More importantly, however, each must fail because they are contradicted by many of the very documents and sources that Plaintiff itself relies on, and they are likewise contradicted by SEC filings and other public documents.

In effect, the argument, among other things, asserted that plaintiff had not met the credible evidence burden. 

As an alternative ground, the Company asserted that plaintiff had been told everything it needed to know about the reasons for refusing to accept the resignations.

• Regarding the Board's decision to reject certain director resignations submitted under a Pfizer-style governance policy following a vote at the Company's 2008 annual meeting, the Company, contrary to the aspersions cast by Plaintiff, did disclose the reasons why the Board (without participation by the directors whose resignations were tendered) determined that it would not be in the shareholders' best interests to accept those resignations. Plaintiff's conclusory allegations of entrenchment in connection with the decision, which are tied to absolutely no evidence that would even suggest a cognizable entrenchment motive, must fail for lack of any support.

In short, the Company had made adequate disclosure and the plaintiff had not presented sufficient "credible" evidence to allow for inspection of the Company's records.

The complaint and other primary materials are posted on the DU Corprate Governance web site.

Full post as published by The Race to the Bottom on July 20, 2009 (boomark / email).