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Leaving the Contractual Term “Voting Power” Undefined Could Be Risky Business

What does the contractual term “voting power” mean?  Does it refer only to the power to elect corporate directors, or does it refer to the power to vote on any fundamental matter of corporate governance?  Is voting power an attribute of stock, or is it something that shareholders possess?  Commercial Division Justice Marcy Friedman’s recent decision in Special Situations Fund III QP, LP. v. Overland Storage, Inc.,suggests that the contractual term “voting power” could conceivably bear any of these meanings, depending on context and the parties’ intent—which suggests that leaving this term undefined in a contract could be risky business.  Any attorney who regularly drafts stock purchase agreements, voting agreements, or other contracts that use the term “voting power” would do well to take note of this recent Commercial Division decision.

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In Casey Capital, LLC v. Levy, the Commercial Division provides a cautionary tale for derivative shareholder plaintiffs alleging demand futility

Activist investors are an increasing presence on the stock ledgers and in the boardrooms of public companies.  Since 2010, one in seven companies on the S&P 500 has faced an activist shareholder challenge.[1]  But activists can encounter pitfalls when they seek to challenge incumbents through derivative litigation, as illustrated by the recent Commercial Division decision in Casey Capital, LLC v. Levy, C.A. No. 652805/15, 2016 N.Y. Misc. LEXIS 3107 (N.Y. Sup. Ct. Aug. 19, 2016) (Scarpulla, J.).

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