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Business Associations Keyed to Coffee, 9th Ed.
MM Companies, Inc. v. Liquid Audio, Inc.
Citation:
813 A.2d 1118 (2003)Facts
MM Companies owned approximately 7% of Liquid Audio’s stock and had been seeking to gain control of the company for over a year, including making acquisition offers that were rejected as inadequate. Liquid Audio had a five-member staggered board with two Class III directors up for election at the 2002 annual meeting. MM nominated two candidates for these positions. Just before the annual meeting, when it became apparent MM’s nominees would win, Liquid Audio’s board amended the bylaws to increase the board size from five to seven members and appointed two new directors to fill these positions. The Court of Chancery found that the board’s primary purpose was to diminish the influence of MM’s nominees by preventing the possibility that MM could gain control if incumbent directors resigned. Despite this finding, the Court of Chancery ruled in favor of Liquid Audio, holding that the board expansion did not significantly impact shareholder voting rights. At the annual meeting, MM’s nominees were elected to the board, but their influence was diluted by the board expansion.
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