In late January, VC Zurn rejected a request for an emergency temporary restraining order enjoining a merger between Fifth Third Bancorp and Comerica. The plaintiff alleged a variety of process failures, including deal protections that inhibited Comerica’s ability to seek a superior offer. It claimed that these failures violated the fiduciary duties of Comerica’s board, and also improperly restricted the board’s authority under DGCL § 141(a).

With respect to the 141(a) claim, VC Zurn wrote:

Illegality Under Section 141 and Omnicare

I begin with illegality. Under Delaware law, contracts “purport[ing] to require a board to act or not act in such a fashion as to limit the exercise of fiduciary duties” are “invalid and unenforceable.” In the merger context, a board may not “disable[] itself from exercising its own fiduciary obligations at a time when the board’s own judgment is most important, i.e., receipt of a subsequent superior offer.” For example, “[d]irectors cannot be precluded by the terms of an overly restrictive ‘no-shop’ provision from all consideration of possible better transactions.”64 Boards are required to bargain for effective fiduciary out clauses permitting them to discharge their managerial authority in fidelity to stockholders. When managerial authority is preserved, the Court will decline to craft a per se rule “that the contract is invalid simply because it delimited the range of discretion the directors otherwise had under the law to act.”…

HoldCo invokes Omnicare, Quickturn, and ACE Ltd. Those cases are readily distinguishable….The Comerica board did not “tie its own hands for a year” as HoldCo alleges. Before the vote, nothing about the Merger was a fait accompli or a mathematical certainty. Nothing prevented Comerica’s board from considering, negotiating, or pursuing alternative transactions if it believed, in good faith, that failing to do so would be inconsistent with its fiduciary duties….

After this section, VC Zurn went on to reject the plaintiff’s Unocal/fiduciary claims.

But … forgive me … after Section 122(18), isn’t the authority question dead letter? Certainly, an acquirer is a “prospective stockholder,” so doesn’t that mean the board has at least the authority to tie its own hands in a merger agreement? Whether it does so in compliance with its fiduciary obligations is a separate question, but VC Zurn did treat these as distinct issues.

I checked the briefing, and the parties made no reference to 122(18). To some extent, that makes sense – everyone was in a rush on this. And the parties – especially defendants – may very well have not wanted to introduce novel legal questions into the mix. But the defendants even cited West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., 311 A.3d 809 (Del. Ch. 2024) as stating the correct standard for evaluating the validity of a contract under 141(a), and the plaintiff cited Moelis repeatedly in its reply, so 122(18) was kind of … glaring in its absence.

Anyway, I’m genuinely asking: is there a reason 122(18) wouldn’t foreclose the 141(a) argument? (Not, of course, the fiduciary argument – just the 141(a) one). I post with some trepidation because if there’s an obvious answer I’ll feel silly for missing it, but I’m a bit stumped and at some point I will have to teach this.

No other thing. Shareholder Primacy experienced some technical recording difficulties this week but we expect to be back soon!