Refining Ratification: Gantler v. Stephens and the Affirmative Defense of Shareholder Ratification

The decisional Delaware law delineating the scope and effect of the doctrine of shareholder ratification has been described as profoundly perplexing, and with good reason. The effort to transplant traditional agency principles of ratification to the more complex and multifaceted relationship between stockholders and directors contributed importantly to this disturbing decisional inconsistency. Once recognized as a powerful affirmative defense with respect to any challenge to the validity or fairness of corporate action, at least when validly secured, shareholder ratification nonetheless was accorded significantly different effects depending upon the legal theory through which the ratified action was attacked. Such effects ranged from an outright dismissal of the challenge, to the absence of any litigation-related consequence of any kind, and included several falling somewhere in between. Though valiant judicial efforts were made from time to time to glean from the precedent a harmonious underlying policy that might explain these differing effects, the broad body of law continued to defy coherent analysis.

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