A lawsuit filed in Delaware Chancery Court on Thursday contends that Snap Inc. violated corporate law by amending a section of its charter without asking for shareholder input. Specifically, the complaint says that Snap made the decision to suspend Class A Common Stockholders’ ability to hold officers and directors accountable for egregious conduct without soliciting vote from that shareholder class as required by the Delaware General Corporation Law (DGCL).
According to the suit, Snap is a camera company, most known for its flagship product, Snapchat, a mobile application that allows users to share short videos and images that are deleted by default after a fixed period of time. The company derives profits from partnering with advertisers who promote products and content to its users, the complaint notes.
Snap’s two co-founders who also serve as its CEO and CTO, “control, mainly through their ownership of all of the Company’s super-voting Class C Common Stock, more than 99% of the voting power of Snap’s outstanding capital stock,” the complaint explains.
The conflict arose when, on August 24, Snap “approved the Charter Amendment and adopted it by written consent of the Class C Common Stockholders, purporting to eliminate one of the ‘powers, preferences or special rights’ appurtenant to ownership of Class A Common Stock — the power to seek relief for reckless or grossly negligent conduct among the Company’s officers.”
Because Snap’s directors and officers have come under scrutiny from various lawsuits including for breach of duty, the entitlement was critical to shareholders’ continued ability to hold their officers accountable for professional reckless and grossly negligent conduct, the filing says.
The revocation of these shareholders’ power was without lawful basis, the complaint argues, pointing to DGCL Section 242(b)(2), which provides that the “holders of any class or series of stock a separate class or series vote on any amendment that adversely affects any of the powers or rights appurtenant to that stock, “whether or not entitled to vote thereon by the certificate of incorporation.’”
As the company was “plainly required” to solicit a vote from Class A Common Stockholders, the plaintiff-shareholder seeks judicial intervention to invalidate the charter amendment.
The shareholder is represented by Bernstein Litowitz Berger & Grossmann LLP and Andrews & Springer LLC.
