Just before Thanksgiving, the Delaware Supreme Court issued its opinion in Airgas, Inc. v. Air Products and Chemicals, Inc.
At issue was whether a bylaw proposed by Air Products at the annual meeting of Airgas stockholders on September 10, 2010 was valid. Chancellor Chandler of the Delaware Chancery Court upheld the bylaw, but the Delaware Supreme Court reversed.
For a full account of this case, you’ll need to look elsewhere. (Francis Pileggi has a brief account of the case here and has posted the opinion here; Gordon Smith’s account on the Conglomerate blog is here; and Deal Professor Steven Davidoff’s account is here.) My interest is limited to the contract-interpretation aspect. (Delaware courts treat company bylaws as a contract between stockholders.)
The proposed bylaw provides that the next annual meeting of Airgas stockholders would be scheduled for January 2011, only four months after the 2010 annual meeting. Article III of Airgas’s bylaws states that directors “shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.”
Air Products argued that that a term of two years and four months from the year of their election was consistent with this charter provision. Chancellor Chandler held as follows:
Construing the ambiguous terms in favor of the shareholder franchise, the class of Airgas directors who were elected in 2008 will have their terms expire in 2011—the “third year” following the “year” of their election (2008). Thus, I conclude that Air Products’ proposed bylaw amends Article II of Airgas’s bylaws, and that it is not inconsistent with or in conflict with the language used in Article III.
But the Delaware Supreme Court reversed on the grounds that extrinsic evidence suggested that a three-year term had been intended.
I’m a bystander here, but I concur with Steven Davidoff, who describes the decision as “curious” and notes that “The signal this reversal sends is that it basically says don’t worry about the language of your contracts so long as everybody ‘knows’ what it means.”
This case serves as a reminder that you should err on the side of hyperprecision when dealing with references to time.
Generally, year and annual are ambiguous, as it’s unclear whether you’re referring to the 12 months beginning January 1 or the period from any given day (such as the date of a contract) to the same day the following year. (See MSCD 9.42.) But annual meeting adds an extra wrinkle, as it’s universally accepted that an annual meeting doesn’t have to take place on the same day every year. So what does annual meeting mean?
The notion that annual meeting should mean roughly 365 days apart is hopelessly vague: how many days can you add or subtract before your meeting no longer qualifies as annual ? Having a meeting qualify as the 2010 annual meeting if it’s held anytime in 2010 is more sensible, but if you want that meaning to prevail, whether in organizational documents or in a regular contract, you’re going to have to use language that’s clearer than that used in Airgas’s bylaws.