Account v. Hilton Hotels Corp.

Hilton Hotels Corp. (Hilton) (defendant) was a Delaware corporation that owned and managed hotels. In 1999 Hilton’s board of directors adopted a poison-pill rights plan under which a dividend of a preferred-share purchase right was automatically attached to each share of common stock. A common shareholder could purchase one one-hundredth of a share of preferred stock for $80, and if a triggering event occurred, the shareholder could purchase two shares of common stock at half price. The purpose of the plan was to place the board of directors between Hilton’s shareholders and an entity attempting to acquire Hilton, allowing the board to oppose an unwanted acquisition by diluting the acquirer’s holdings in the corporation through the rights attached to Hilton’s common stock. The Leonard Loventhal Account (the trust) owned Hilton common stock and opposed the rights plan. After the trust received a new stock certificate indicating that the rights had been attached to its Hilton stock, it filed a lawsuit in Delaware state court against Hilton seeking to invalidate the rights plan. The trust argued that the board of directors could not adopt the plan without shareholder consent and that the plan improperly altered certificates for Hilton common stock and Hilton’s certificate of incorporation, restricted the transfer of the common stock, and shielded the board against liability from claims brought under the rights plan. The chancery court dismissed the case, arguing that the trust could not challenge the rights plan. The chancery court relied on the doctrine of stare decisis for its holding, finding that such a challenge was prohibited under Moran v. Household International, Inc. The trust appealed.